IT : Training expense on new manufacturing unit which was extension of existing business were allowable as revenue expenditure
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[2013] 38 taxmann.com 151 (Delhi)
HIGH COURT OF DELHI
Commissioner of Income-tax
v.
Samsung India Electronics Ltd.*
SANJIV KHANNA AND SANJEEV SACHDEVA, JJ.
IT APPEAL NO. 132 OF 2010
JULY 9, 2013
Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Extension of business, expense for] - Assessment year 1998-99 - Assessee-company claimed deduction of certain expenditure incurred on training given to technical and non-technical persons - Assessing Officer held that expenditure had resulted in enduring benefit to assessee and allowed only one-sixth of expenditure amortizing same over period of six years - On appeal, Commissioner (Appeals) disallowed entire expenditure holding that it related to training given before commencement of business of manufacturing which started from 17-6-1997 - On second appeal, Tribunal allowed training expenses holding that expenditure was essentially for purpose of carrying on existing business, for which commercial operations had started in 1996-97, and new manufacturing unit was an extension of existing business - Whether on facts, Tribunal rightly allowed assessee's claim for deduction of training expenses - Held, yes [Paras 3 and 5] [In favour of assessee]
CASES REFERRED TO
CIT v. Samsung India Electronics Ltd. [IT Appeal No. 98 of 2010 dated 3-9-2012] (para 9) and CIT v. Cement and Chemical Industries Ltd.[1973] 91 ITR 170 (Guj.) (para 4).
Ms. Suruchi Aggarwal for the Appellant. Satyen Sethi and Arta Tarana Panda for the Respondent.
ORDER
Sanjiv Khanna, J. - This appeal under Section 260A of the Income Tax Act, 1961 (Act, for short) by the Revenue, which relates to the assessment year 1998-99 raises two issues. The first issue pertains to deletion of disallowance on account of brand-building and dealer's loyalty expenditure. The said issue is covered against the Revenue by decision dated 3rd September, 2012 in ITA 98/2010, CIT v. Samsung India Electronics Ltd.We note that ITA 98/2010 also relates to the assessment year 1998-99.
2. The second issue relates to training expenses of Rs.29,30,950/-. The said expenses were incurred by the respondent-assessee on training given to technical and some non-technical persons. The Assessing Officer has held that that the expenditure had resulted in enduring benefit to the assessee and amortized the expenditure over a period of six years. 1/6th of the said expenditure was allowed for the year 1998-99. Assessee filed first appeal but the CIT (Appeals), instead of agreeing with the assessee, disallowed the entire expenditure holding that it relates to 'pre setup period' and was capital expenditure. The CIT (Appeals) observed that some of the employees, mainly engineers and technicians, were sent to various plants in Indonesia, Bangkok and Seoul but the said training was given before commencement of the business of manufacturing which started from 17th June, 1997. The technicians were trained abroad during the period February-March 1997.
3. The contention of the assessee, which has been accepted by the tribunal, is though manufacturing of colour TV sets commenced with effect from 17th June, 1997, but the business was setup earlier. The date of commencement of manufacturing was not relevant. The Tribunal has held that the expenditure was essentially for the purpose of carrying on the existing business, for which the commercial operations had started in 1996-1997, and the new manufacturing unit was an extension of existing business. We have already noticed that the Assessing Officer did not treat the expenditure in question as capital in nature but amortized it over a period of six years. The first appellate authority took notice of the fact that actual manufacturing activity commenced from 17th June, 1997, but did not go into the question as to the date on which business activities commenced i.e. business was setup and whether the manufacturing activity was in continuation of the earlier business. The first appellate authority has, however, recorded that the respondent-assessee had commenced its business during the previous year in 1995-96 and training was given in March, 1997.
4. Pertinent observations have been made in CIT v. Cement and Chemical Industries Ltd.[1973] 91 ITR 170 (Guj.) by a division bench of Gujarat High Court (authored by Justice Bhagwati P.N. J as his Lordship then was) that "business" connotes a continuous course of activities and all the activities need not start simultaneously in order that the business may commence. The business would commence with the activity which is first in point of time and which much necessarily precede all other activities. Thus, in that case when the cement company quarried the leased area of land and extracted limestone from it, it was considered as much an activity in the course of carrying on the business as the subsequent activities of manufacture of cement and sale of manufactured cement. This activity came first in point and laid foundation for others and, hence, was held to be deductible in computing the trading profits of the assessee for the relevant assessment years.
5. In view of the findings recorded by the tribunal, we do not think that any substantial question of law arises for consideration and the appeal is dismissed.
VARSHARegards
Prarthana Jalan
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