COMMISSIONER OF INCOME TAX Vs. SOUTHERN ROADWAYS LTD

JUDGEMENT

(1.) THE above tax case appeals are directed against the order of the Income-tax Appellate Tribunal in ita. Nos. 1687 & 1837mds/97 dated 28. 12. 2004.

(2.) 1. The Revenue is the appellant. The assessment year involved is 1994-95. The case of the appellant is that the assessee/respondent herein, engaged in the business of goods transport, filed its return declaring a total income of Rs. 87,94,210/ -. The assessing officer while completing the assessment inter alia made following disallowances/additions: i) disallowance of telex rent, telephone rent, postal franking machine rent, rates and taxes -Rs. 4,74,649/ - ii) disallowance of the prepaid expenditure - 59,53,330/-, iii) computer software and hardware upgradation expenses was treated as capital expenditure and iv) addition under Section 41 (1) - Rs. 6,21,863/ -. 2. 2. Not satisfied with the order of the assessing officer dated 06. 12. 1996, the assessee filed an appeal before the Commissioner of Income Tax (Appeals ). The Commissioner of Income Tax (Appeals) partly allowed the appeal holding that what is claimed under the head 'upgradation'is only expenditure relating to existing computers for changing certain parts and adding to their efficiency. There is no structural alteration as such. The change has been made only for the purpose of achieving business results in a fast changing scientific scenerio. The Commissioner of Income Tax (Appeals) partly dismissed the appeal with regard to the expenditure incurred towards telephone, telex rent. 2. 3. Aggrieved against the order of the Commissioner of Income Tax (Appeals) dated 02. 06. 1997, both the assessee and the revenue have filed appeals before the Income Tax Appellate tribunal. The Income Tax Appellate Tribunal partly allowed the assesse's appeal and dismissed the Revenue's appeal.

(3.) 1. Issue No. 4 : iv) Whether in the facts and circumstances of the case, the Tribunal was right in holding that rs. 24,12,000/- paid to HCL for purchase of new computers allowable as a deduction as a revenue expenditure ? 7. 2. In so far as fourth question is concerned, it is not in dispute that the assessee did not claim any expenditure for installation of new computers, but claimed the expenditure for the up-gradation of existing computers. Further, the expenditure was incurred for improving the efficiency of the existing system with a view to keep pace with improvement of technology and no machinery was brought into existence. As rightly pointed out by the Appellate Tribunal, there was no complete structural alteration and on the other hand, there were only changes in certain areas for improving efficiency and achieving good results. The assessee has not achieved any enduring benefit. 7. 3. The Supreme Court in alembic CHEMICALS WORKS CO. LTD. v. C. I. T. (177 ITR 377), after referring to B. P. Australia Ltd. v. Commissioner of Taxation of the Commonwealth of Australia [1966] AC 224 (PC), held that , "what is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business. The expression "asset or advantage of an enduring nature" was evolved to emphasise the element of a sufficient degree of durability appropriate to the context. &quot ; It was also held that the phrase'enduring benefit'is not thinking of advantages that are permanent. There is a difference between the lasting and the everlasting. 7. 4. In the light of the above ratio laid down by Supreme Court, we are of the view that up-gradation of computers by changing certain parts thereby enhancing the configuration of the computers for improving their efficiency, but, without making any structural alterations is not of an enduring nature. Further, the assessee had not acquired any computer software. The expenditure incurred by the assessee has therefore to be treated as revenue expenditure. Accordingly, the question is answered in the affirmative, against the Revenue and in favour of the assessee. In the result, both the appeals stand dismissed. Consequently, TCMP No. 1207 of 2005 is also dismissed. .