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57 Business expenditure : Revenue/Capital :
S. 37(1) of Income-tax Act, 1961 : A.Y. 2001-02 : Assessee in travel business :
Expenditure on development of its website : Is revenue expenditure allowable
u/s.37(1).
[CIT v. Indian Visit.com (P) Ltd., 176 Taxman 164 (Del.)]
The assessee was engaged in travel business. The assessee
made all kinds of arrangements for its clients such as booking of hotel rooms,
providing taxi services, booking of air tickets and railway tickets, etc. During
the relevant year the assessee had incurred an expenditure of Rs.20,23,317 on
development of its website. The assesse’s clients could use the said website for
the purpose of availing of the services provided by it. The assessee had claimed
the deduction of the said expenditure as business expenditure u/s.37(1) of the
Income-tax Act, 1961. The Assessing Officer disallowed the claim holding that
the expenditure was of capital nature inasmuch as the assessee had acquired an
asset, which would provide it with an enduring benefit. The Tribunal allowed the
assessee’s claim.
On appeal by the Revenue, the Delhi High Court upheld the
decision of the Tribunal and held :
“(i) Considered in the light of the principles enunciated
by the Supreme Court, it is clear that just because a particular expenditure
may result in an enduring benefit it would not make such an expenditure
capital in nature. What is to be seen is what is the real intent and purpose
of the expenditure and as to whether there is any accretion to the fixed
capital of the assessee. In the case of expenditure on website, there is no
change in the fixed capital of the assessee. Although the website may provide
an enduring benefit to an assessee, the intent and purpose behind a website is
not to create an asset, but only to provide a means for disseminating the
information about the assessee. The same could very well have been achieved
and, indeed, in the past, it was achieved by printing travel brouchers and
other published material and pamphlets. The advance of technology and the
wide-spread use of the Internet has provided a very powerful medium to
companies to publicise their activities to a larger spectrum of people at a
much lower cost. Websites enable companies to do what the printed brouchers
did, but in a much more efficient manner as well as in a much shorter period
of time and covering a much larger set of people worldwide.
(ii) The Tribunal has correctly appreciated the facts as
well as the law on the subject and has come to the conclusion that the
expenditure on the website was of a revenue nature and not a capital nature.”
