In the case of M/s Abhipra Capital Limited vs Deputy Commissioner of Income Tax (Investigation), the Delhi High Court held that amount paid to National Stock Exchange (NSE) as non-adjustable deposit for acquisition of membership cannot be treated as revenue expenditure and the same would be termed as capital expenditure.
Assessee Company in the present case was incorporated on 28th September 1994 with the main objective to deal in shares in stock markets, merchant banking and other financial services. During the relevant assessment year, the Assessee-Company had acquired membership of the NSE and paid Rs.5,00,000 as a non-adjustable deposit for acquisition of membership as per the rules and the Assessee treated the same as revenue expenditure in its books of accounts.
The Assessing Officer (AO) held that the aforesaid payment of Rs.5,00,000 cannot treated as revenue expenditure because, it was non-recurring in nature and the same had given rise to an enduring benefit. He was of the view that the said payment enabled the Assessee to acquire membership and since the acquisition gave rise to an enduring benefit it would be treated as capital expenditure. Consequently, he allowed only 1/10th of the total expenditure as deduction and the balance was disallowed and added the same to the income of the Assessee while computing its total income.
On appeal, the lower authorities refused to accept the contention of the Assessee and sustained the order passed by the AO. Aggrieved by the order of the authorities, the Assessee approached the Court on appeal.
Before the Court, the counsel for the Assessee submitted that as per the instructions or circulars issued by the board in respect of the deductibility of security deposits with the postal department under OYT schemes or other schemes states that the said deposits have been treated as revenue expenditure under Section 37 of the Income Tax Act 1961.
After considering the facts and circumstances of the case, the bench comprising Justices Sanjiv Khanna and Chander Shekhar observed that “one-time and lump-sum payment made to acquire membership right by a company or person engaged in business of trading in stocks, brings into existence an asset or an advantage of enduring nature. The Court further observed that the said expenditure enabled the Assessee to acquire an asset to earn income in that year and in future. It was a payment by the Assessee to acquire a source which enabled the Assessee to do business that means the aforementioned membership brought into existence an advantage for all times. In the present case, the payment made by the Assessee for acquiring membership would not be termed as revenue expenditure but the same should be treated as capital expenditure”.
The court further observed that while perusing the material facts, it can be concluded that the expenditure made was for acquiring and bringing into existence an asset or advantage of enduring benefit and not for running business to produce more profits, therefor the said expenditure fall under the head of capital expenditure.
Subscribe Taxscan Premium to view the Judgment
