A two-judge bench of the Delhi High Court has held that the payment for encashment of bank guarantee and the interest paid on late payment are capital expenditure for the purpose of Income Tax Act.
The assessee was primarily engaged in the business of developing, maintaining and operating of Bus-Q-Shelters (BQS), metro stations, highways etc., in its return of income filed on 29th September 2009 had declared net loss of Rs.8,11,91,801/-. While completing the assessment, the Assessing Officer disallowed expenditure of Rs.2,08,92,603/- as capital loss suffered by the respondent-assessee for failure to perform its part of the concessionaire agreement with the Delhi Transport Corporation.
The Revenue contended that Rs.2,08,92,603/- paid by the respondent-assessee on encashment of bank guarantee and interest on late payment, was capital expenditure and not revenue expenditure.
The bench comprising Justice Sanjiv Khanna and Chander Sekhar observed that whether the expenditure is capital or revenue in nature has to be looked at from a commercial point of view.
“In the present case as noticed there was the failure on the part of respondent-assessee to perform its part of the agreement including operation and maintenance of bus shelters and pay concessionaire fee of Rs.4.09 crores per month. Any expenditure or payment of the said nature would necessarily be revenue in character. Even construction cost of the shelters had to be amortized over a period of 10 years. These would, therefore, not be the expenditure of capital nature,” the bench said.
“The Assessment Order does not refer to the enduring or permanent benefit acquired by the respondent-assessee and therefore on default and failure to abide by the terms, the expenditure or loss incurred by the respondent-assessee was capital expenditure/loss. Cost of construction as recorded and held above was not capital expenditure. Further, the respondent-assessee was liable to pay the monthly fee of Rs.4.09 crores to the Delhi Transport Corporation, which is certainly revenue expenditure. Additionally, the respondent-assessee was under obligation to maintain and operate shelters which again would be revenue expenditure,” the bench added.
