Cit v. Citi Financial Consumer Finance India Ltd

order to allow the expenditure as revenue expenditure, the relevant factor to be seen was that the expenditure was incurred in ttre year in question and the same was for business purposes. The question of such an expenditure of enduring benefit would not be of any 'relevahce, in such circumstances, having regard to the judgment of the Supreme Court in Ernpire jute C.o, Ltd" Vs. Comrnissianer af Incarne Tax, I24 lTR. 01. He further submitted that accrual of income and incurring of expenditure were entirely two different aspects and he also submitted that 'matching concept ' would not apply in the instant case as held in carmrmissioner af Incotne Tax vs. trndwstrial Finance corporatian of nndia Ltd" 185 Taxman 296. He further n p,l920 / 20L0,I97 4 / 20 IO, 0 I / 2O]-r,o 5 / 2orl t sulrmitted that the judgment in Mladras Industrial nnvestnnent Corparatioit tr-td.(supra) relied upon by the Revenue was duly considered and explained by this Court in the same judgment i.e. IFCI (supra).

¶8From the facts noted above and on the basis of submissions of learned counsel for the parties, following aspects clearly emeige as undisputable:

(a) The .expenditure in question is incurred by assessee in the relevant assessment years in which ' the assessee is claiming deduction thereof under Section 37 of the Act. Thus there is no dispute that expenditure is in fact incurred.

(b) lt is also not in dispute that the expenditure . in question is business expenditure incurred ' wholly for the purpose of the business of the ^), aSSeSSee

(c) The expenditure incurred in the nature of advertisement and publicity is incurred forever and in no manner any portion thereof reverts back to the assessee.

¶9The aforesaid facts would. demonstrate that the ingredients , of Sectio n 37 of the Act stand satisfied. Therefore, normally the r a.IB2O l2OIO,]-97 412010, 0 1/20 1 1,O5 I2OII \9 Lh expenditure is to be allowed as business expenditure in the year in question in which the same is incurred. ln this backdrop, we have to consider the arguments of the Revenue predicated on the so called enduring benefit which is the expenditure on account of advertisement and publicity confers. This argument is based on the judgment of the Apex Court in Madras Indwstrial 'trnvestrnent Corparation Ltd.(supra). In that case, the Supreme Court had referred 'l,to. this 'matching concept '. lt was held that ordinarily revenue expenditure incurred wholly or exclr-rsively for the purpose of business, can be applied in the year in which it is incurred. However, the facts . may justify spreading the expenditure and claiming it over a period of ensuing years, where allowing the entire expenditure in one year could give a very distorted picture of the profits of a particular year. One such instance was issuing debentures at discount. The Supreme Court was of the opinion.that though in such cases the assessee had incurred the liability to pay the discount in the yeir of issue of debentures, the payment is to secure the benefit over u nr,lO"r. of years. There was a continuing. benefit to the assessee of the company over the entire period and, therefore, the liability was to be spread over the period of debentures,

¶10We are unable to persuade ourselves by the aforesaid submission of 'the learned counsel for the Revenue. ldentical nn.IB20/20I0,I974/2010,0U2011 ,O5/2OII page L0 of 2t { argument was taken by the Revenue in IFCI (supra). Explaining the ratio of Supreme Court in Madras lndwstriatr Xnvesttnent Corpn. I-td, (supra), the argument of the Revenue was rejected in the following manner:- 'The judgments on which reliance is placed by the learned Counsel for the Revenue would be of no avail in the instant case. The learned Counsel for the Revenue had strongly argued that matching concept is to be applied, as ller which part of the expenditure had to be deferred and claimed in the subsequent years and,. therefore, approach of the AO was correct. However, this argument overlooks that even in Madras Industrial Investment Corporation (supra), on which the reliance was placed by Ms. Bansal, the general principle stated was that ordinarily revenue expenditure incurred wholly and exclusively for the purpose of businesS can be allowed in the year in which it is incurred. Some exceptional cases can justify., spreading the expenditure and claiming it over a period of ensuing years. lt is important to note that in that judgment, it was the assessee who wanted spreading the expenditure over a period of time as was justifying such spread. lt was a case of issuing debentures at discount ' *f 'r"r"u; th" iss"ssee had actually incurred the liability to pay the discount in the year of issue of debentures itself. The Court found that assessee could still be allowed to spread the said expenditure over the entire period of five . years, at the end of which the debentures were to be redeemed. By raising the money collected under the said debentures, the assessee could utilize the said amount and secure the benefit over number of years. This is discernible from ' the following passage in that judgment on which reliance was placed by the learned Counsel for the Revenue herself: n xLB20 l2OIO,Ig7 4 12010, 01/20 1 1,O5 I2OII I/ "The. Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in 'question, the assessee was entitled to deduct the entire amount of Rs. 3,00,000 in that accounting year. This conclusion does not appear to be justified looking tO.the nature of the liability. lt is true that the 'iiability has been incurred in accountin$ year. But the liability is a continuing liability which stretches over a period of 12 . years. lt is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue . expenditure which is incurred wholly and exclusively tor the purpose of business must be ' allowed ln its entirely in the yqar in which it is incurred. lt cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred . expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the 'entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. v. Commissioner of Income-Tax, Calcutta-l (1983) 144 ITR 474, the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowecl a proportionate deduction.in the accounting year in question. lssuing debentures at a discount is another . such instance where, although the assessee ' has incurred the liability to pt the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of , company over the .entire period. The liability should, therefore, be spread over the period of the debentures." Thus, the first thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who r e.1820 1201.0,I97 4/2010,0 1/20 1 1,05 IZO]-I Page t2 of 27 wanted the spread over, The 'Court was conscious of the principle that normally ' revenue expenditure is to be allowed in same year in.which it iS incurred, but at the instance of the assbssee, who wanted spreading over, the Court agreed to allow the assessee that benefit when it was found tlrat there was a continuing benefit to the business of the company over the entire period." l

¶11This Court, thus, explained in no uncertain terms that the normal rule accepted by the Supreme Court in the said judgment : was that the expenditure is to be allowed in the year in which it ; was incurred. Only at the instance of the assessee who wanted to spread over, the court had agreed to allow the assessee the benefit after finding that there was a continuing benefit to company over the entire period. The ratio of this judgment was thus summarized in the following manner:- "What follows from the above is that normally . the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if assessee claims that expenditure in that year, the Income Tax department cannot deny the . same. However, .in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the.principle of matching concept is satisfied, which upto now has been restricted to the cases of debentures.,

¶72At this stage,- it would be of advantage to discuss the judgment of supreme court in Ermpire lute, (supra) which repelled the theory of expenditure of enduring nature, in a great tr A.I82O /2070,797 4 /2010, 01/20 1 1,O5 /20II Page L3 of 21 \?. measure. In that cas.e, the Supremd Court noted that by decided cases, the courts evolved various tests for distinguishing bet 'ween the capital and revenue expenditure but no test is paramount or conclusive. Every case has to be decided on its facts keeping in mind the broad picture of whole operation in respect of which the expenditure . has been incurred. At the same time, few tests formulated by the Courts were taken note of. One such test which . was specifically sp.elled-out and may be relevant for our purpose I was "when aQ expenditure is made not only once and for all, but ' with a view to bringing into existence of an advantage for which enduring benefit of a trade, the expenditure can be treated as capital in nature and not attributable to revenue". However, cautioned the CoLirt, it would be misleading to suppose that in all , cases securing a benefit for business expenditure would be capital expenditure. The Court added the caution in the following words:- .r ;lftr: 'Jt%ff,::ffiy:ilff.:?"JilTtu,ixfi! benefit, ffiay, none-the-less, be on revenue account and the test of enduring benefit may break down. lt is not every advantage of enduring nature acquired by an assesses that brings the case within the principle laid down in this test. What ls matenial to considen is tkre natu^lne of the advas 'ltaEe in a cotmmencial sernse and it is only whene tlre advantaEe !s in tt 'le capitatr field that the expeird[ture would b,e disallowable on an appl-lcation of thls test, lf the advantage consists merely in '-J ra.\B2u201O,I9.7 4120L0,0L/2OII,O5/2OII ": Page L4 of 21 \B \t facilitating the 'assessee 's trading operations or enabling the management and conduct of the assessee 's business to be carried on more efficiently or fxore profitably white leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advanta.ge may endure for an indefinite future. The test of enduring benefit is.therefore not a certain or ^conclusive test an 'd it cannot lre applied blindly and mechanically without regard to the particular facts and circumstances of a given case." '

¶13Applying the aforesaid principle to the facts of this case, it clearly emerges that the expenditure on ' publicity and advertisement is to be treated as revenue in nature allowable fully in the year in which it was incurred. Concededly, there is no advantage which has accrued to the assessee in the capital field. The expenditure was incurred to facilitate the assessee 's trading operations. No fixed capital was created by this expenditure. We may also add here that .in the lnco.me-Tax laws, there is no concept of deferred revenue expenditure. Once the assessee claims the deduction for whole amount of such expenditure, even in the year in which it is incurred, ' and the expenditure fulfills the test laid down under Section 37 of the Act, it has to be allowed. Only in exceptional cases, the nature mentioned in Madras lndustrial Corporation (supra), the expencliture can be allowed to be spread over, that too, when the assessee ilrooses to do so. r a. 'J,820 /20IO,I97 4/20Io,oIl2o1.I,os l2oII Page L5 of 21 J4. We th.us are bf the opinion that the aforesaid question of law as formulated by the Revenue has to be answered in favour of the assessee. Re: Expenditunre @n account of stamplnE fee, dinect selllnE expend[tune and comrnission payrnent.

¶15As per the Assessing Officer, the assessee had been financing the,hire purchase of vehicles and homes etc. and the period of such financing were.ranging from less than one year to upto 5 years. On such transactions, direct selling expenses, stamping fee and commission paid to the selling agents could not be treated as expense relating to the year in which the transaction took place as. the period of financing was normally more than one year. On this premise, the Assessing Officer took the view that these expenses coulb not be termed as having the chargeability in which they were incurred. He took average of three years for such agreements and spread the expense over a period of three years tlrereby allowing ll3 'd expenditure incurred in that particular year. The matter was .taken up in appeal and before CIT (A), the assessee questioned the aforesaid approach of .the Assessing Officer by contending that in the course of its business, the assessee enters in the loan agreements of hire purchase which agreements are required to be stamped in accordance with the provisions of Indian Stamps Act. The stamp rc a.IB20 /2070,L97 4 12010, 0 1/2 0 1 1,O5 /20]-I duty paid by the assessee is debited to agieement stamping fee under the majOr head of {rates and taxbs ' and is claimed aS revenue expenditure. This entire process of getting stamped the agreements had been outsourced by the aSSeSSee to the Contract Processing Associates (CPA) and who are paid remuneration as well. Therefore, the expense towards 'stamping as well as commission paid to the agents is debited in whole in the year in which it is incurred and couid not be treated as advertisement expense.

¶16The CIT (A) was unimpressed with this argument and found that the assessee was spreading over the income during the number of yearb that the financing is spread.over and, therefore, expenditure on the aforesaid counts was required to be spread over. The ITAT, however, denounced this reasoning of the CIT (A) and accepted the plea that the expenditure incurred had nothing to do with the period of length of time and had no linkage, whatsoever, to any period, the entire expenditure was allowable in the year in,which it was incurred. The Tribunal has further held that the expenditure is incurred once for all in the form of stamping duty as well as commission paid to the direct selling agents for procuring.$he loan assignments and it is not dependent i upon the working ou 't 'of the agreements ultimately enterLd into between the assessee and the customers. Since the commission tr A.L820 /20rO,rg7 4/2010, O1/20 1 1,05 l2oII PagetT of27 >( is paid to the direct selling agents, for their services in sourcing hire in the year in which the loan is disbursed, it is to be allowed as : business expenditure. The Tribunal, to arrive at this finding took into consideration the clauses.of the agreement relating to mode of payment of consideration as wel.l as 'termination ' clause in agreement. Thus, as the entire expenditure wa.s incurred which admittedly have nexus with the business of the assessee, it was treated as business expenditure allowable under Section 37 of the Act. The Tribunal also relied upon the judgment of Supreme Court in the cases of Calcwtta Cornpany Ltd, Ys. ClT, 37 ITR 1, CIT Vs. Associated Cernent Companfes [-td, I72 ITR 257, En 'tpire jute Campany Ltd. Vs. CIT, 724 ITR 0L and judgment of this Court in CfTVs, Salora lnternationatr l-td. 308 ITR 799.

¶17We are in agreement with the aforesaid yiew,taken by. the Tribunal and hold that the expenditure was required to be allowed as revenue/business expenditure incurred in that year. The reasons given by us while allowing the advertisement and publicity expenditure will apply here as well. Re: Expenditure on lease l 'lold lm 'lprovennents,

¶18ln the assessment year 2OO2-03, the assessee had claimed revenue expen.diture amounting to Rs. I,52,24,0291-on account of r a.I820 l20t},Ig7 4 12010,01/20 11,05 IZOII >u t: lease hold improvements. The Assessing Officer took the view that the lease improvements were on account of 'n re 'novation carried out in the lease premises and, therefore, had to .be capitalized. More so, when in the earlier year also, the assessee had capitalized the same and claimed depreciation @ 10% on it, He thus treated the aforesaid expenditure of lease hold improvements as capital expenditure and allowed depreciation @ I0%. We may note here that the said expenditure of Rs. 1,52,24,029 was incurred by the respondent on account of laying of cables, electrical connections, installation OVC conduits, CATS, Sanitary fittings, partitions & pin boards, civil works, brickwork, water proofing, flooring, false ceiling, wall finishes, toilet furnishings, paints on walls and ceilings, earthling, switches and receptacles, glazing on ventilators etc.

¶19The CIT (A) went into the expenses incurred on the aforesaid items details thereof .were furnished at pages 282 to 336 in the paper book filed before him. He noted that the gross amount as per the bills was Rs 7,92,0I,959/-. Out of this, the assessee had himself capitalized { 39,77,9301-as furniture and claimed the balance amount of ,{ 1,52 ,24,0281-as leasehold improvements which were revenue in nature. After verifying the nature of exp.enses from the bills and details produced by the assessee, the CIT (A) was convinced with the justification provided by the r a.IB20 120l-0,I97 4 1201 0, 0 1/2 0 1 1,0 5/2 0 I assessee that the expenditure of Rs. 1.52 crores was Tevenue in nature and holding that disallowance by the AO was not justified, deleted the addition by allowing the entire expenditure as revenue. The Tribunal has upheld this order of the CIT (A).

¶20The argument of Mrs. Bansal was that the nomenclature of ' items of expenditure namely sanitary, fittings, civil works, brickworks, flooring etc. would clearly show that this expenditure could be capital in nature. Her grievance was that the CIT (A) or Tribunal . did not go into this question at all and simply accepted the bifurcation given by the assessee in capitalizing the portion of the expenditure and treating the part of the expenditure as revenue. Her plea,.therefore, was that the matter be remitted back to the Ao. she conceded, at the same time, that even"the Ao had not done. this 'exercise, lt is clear that the As.sessing Officer had not gone into the question as to whether the expenditure incurred on leasehold improvements was capital or revenue in nature. A large number of premises are taken on lease by the assessee throughout the country and expenditure on improvemerits of these lease premises was incurred by the assessee. Thg assessee has treated part of the said expenditure as 'capital in nature and depreciation thereon. In so far as - expenditure to the extent of Rs. r.52 crores is concerned, the same is treated as revenue in nature. na.1820120I0,I97412010,01/2011,05120II page2} of 2t 2L Mrs. Bansal may not be correct in her submission that the CIT (A) simply accepted the assertion of the assessee. The order of the CIT reveals that the plethora of documents in respect of expenditure incurred on leasehold improvements to the extent of Rs. 1.52 crores was filed at pages 282 to 336 of the paper bool<. The order of the CIT(A) clearly reveals that he had "perused the bills filed by the appellant and also verified its various assertions". Thus the CIT (A) accepted the stand of the assessee only after verification of the records and arriving at a finding of fact that the expenditure on the aforesaid account was revenue in nature. In this backdrop, the ITAT has observed that the CIT (A) had verified the details produced by the assessee and gave his categorical finding based thereupon. Thris would, thus, be a mere question of fact 'and no question of law arises thereupon.

¶22The upshot of the aforesaid discussion would be the order of the Tribunal and dismiss all these appeals. to uphold

¶23We order accordingly. ffi, (M.[-. MEFITA) j[.fDGE MARCI-| 30, 20Ln skb trn. 182 0/20 I0,L97 412010,0 1/20 1 1,05 l20II t* jr.!DGE Page 2L of 27

4, !N THE HIGH COURT OF DELHI AT NEW DELHI ./ % tTA L974l20LO tT A OL|2Or. 1, ITA O5/2Or. I IUDGMENT RESERVED ON : 22.03.2011 IUDGMENT DELIVERED ON :30.03.2011 tTA L974l20LO THE COMMISSIONER OF INCOME TAX-V ....APPELLANT Through: Mr. Prem Lata Bansal, Sr. Advocate with Mr. Deepak . Anand, )r. Standing Counsel VERSUS CITI FINANCIALCONSUMER FIN.LTD ....RESPONDENT Through: Mr. C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Advocate. tTA O1/20L1 THE COMMISSIONER OF INCOME TAX.V ....APPELLANT Through: Mr. Prem Lata Bansal, Sr. Advocate with Mr. Deepak Anand, )r. Standing Counsel VERSUS CITI FINANCIALCONSUMER FIN.LTD .RESPONDENT ' Through: Mr. C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Advocate. tTA 05/2011 THE COMMISSIONER OF INCOME TAX.V ....APPELLANT Through: Mr. Prem Lata Bansal, Sr. Advocate with Mr. Deepak Anand, )r. Standing Counsel VERSUS r a.I97 4 12010,0 1/20 1 1,05/201 1 Page I of 2 Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. , CITI FINANCIALCONSUMER FIN.LTD ....RESPONDEN Through: Mr. C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Advocate. CORAM: HON ',BLE MR. JUSTICE A,K. SIKRI HON 'BLE MR. JUSTICE M.L. MEHTA 1. Whether Reporters of Local newspapers may be allowed to see theJudgment? 2. To be referred to the Reporter or not? 3. Whether the Judgment should be reported in Digest? A.K. SlKRt, t. 1. Fo.r orders see, ITA 1820/2010. W '(A.K. StKRt) JUDGE ffi,- JUDGE MARCH 30, 2011 skb r a.197 4 /2O1 0,0 1/2 0 1 1,O5 l2OI7 \a [nX T 'HE F{lGl{;COI0RT OF DEI-hfl[ AT ' hlEW DE[-l{l ) lrA n 82o IZALO,]TA X.974lz$n O ' lTA Ol/zotr lL,lTA O5/201n IUDGMENT RESERVED ON :22.03.2011 IUDGMENT DELIVERED ON :30.03.2011 tTA X820/20nO THE COMMISSIONIER OF IhICOME TAX.V ....4[ 'PEL!.4fi[T Thrdugh: ' Mr. Prem Lata Bansal, Sr. Advocate with Mr. Deepal< ) ^, tlll3; )r standins VERSUS CITI FINIAIVCIAI.CONSI."IMER, FINI.L]TD ..,.RE5PO[\XDEhNT Through: Mr. C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Advocate. ITA L974/20L0 Th[E C@MM!sSIONER. OF II\NCOME TAX-V ....AFDPE[.N.ANT Through: Mr. Prem Lata Bansal, 'Sr. Advocate with Mr. Deepak 'i Anand, )r. Standing Counsel VERSUS , CITI FXhIANNCIALCONSUMER. FfltrU.I.TD ,..."RE5PONDENT ra. 182 0/2 0IO,L97 412010, 01/2 011,05 IZ0II Page ! of 2! + % / [ 'rfA oL/20LL L THE.COM.M[55IONER OF [IUCOME 'TAX-V ,...APPELLAI\{T Through: Mr. Prem Lata Bansal, Sr. Advocate with Mr. Deepal< Anand, )r. Standing . Counsel VERSUS CIT 'I F!NAI\ICIALCON|S[.iMER Flt\U.LTD ....RESPOwDEIUT I rhrous h ' Xiuoi.rt" -ffr n,.?i*ilor?i; . Kumar, Advocate. []tA O5/2011 THE COMMIsSIONER, OF INNCOMiE TAX-V "...AFDPEI-I-ANT ' Through: Mr. .Prem Lata Bansal, Sr. Advocat 'e with Mr. Deepal< Anand, )r. Standing Counsel VERSUS CITI FIRJAN\ICIAI.CONISUMER F[hJ,LTD ....RE5PONDEhilT ' . rhroush: lli".:i: * 'ffnT1i:-:; Kumar, Advocate. CORAM: h{onx 'BLE MR. .l[,JsTlCE A.K. SIKR,I HOntr ',BX_E MR.. Jt.rSTnCE M.[_. MEFITA 1, Whether Reporters of Local newspapers may be allowed ' to see theJudgment? 2. To be referred to the Reporter or not? 3. Whether the Judgment should be reported in Digest? n A.I82O l2OIO,Ig7 4/2OfO, O r/ZO r r,O5 l2}rr . Page zoizt lu ry 1. . These four appeals ar 'e directed against the common order pa$sed by. the lncome Tax Appellate Tribunal in respect of same assessee and pertain to the assessment years 2001--02 and 2002- 03. The ITA Lg74I2OLO and ITA 5I2OII relate to assessrnerlt year 20OI-02 in which the following two questions of law are proposed:- ' "(a) Whethef ITAT. was correct in law in allowing entire expenditure incurred by the assessee on advertisement uls 37 (1) of the Act? (b) Whether ITAT was correct in law in allowing entire expenditure incurred by the assessee on commission, stamping fee and directing selling expenses to the assessee. " 2. ln ITA L82O/2OI0 and OI|20I7 one question relating to expenditure incurred on advertisement is common. Additional question of law which is raised is in