Decided on February 28,2008



D.K. Srivastava, Accountant Member - (1.) THE appeal filed by the department is directed against the order passed by the learned CIT(A) on 01.10.2002 for the assessment year 1995-96 on the following ground: On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in holding that the membership fee paid by the assessee at Rs. 65,50,000/- towards non-refundable security deposit and permanent cash deposit as revenue expenditure.
(2.) Briefly stated, the facts of the case are that the respondent-assessee, namely, M/s. Khandwala Finance Ltd., a subsidiary company of M/s. Khandwala Securities Pvt. Ltd., was engaged in the business of investment, finance and broking activities during the previous year relevant to the assessment year under appeal. The assessee had paid membership fees to the National Stock Exchange and Vadodara Stock Exchange towards subscription and non-adjustable interest free security deposit etc. to the extent of Rs. 65,50,000/- and claimed the same as revenue expenditure in the computation of total income filed along with the return of income. The break-up of payments made and their treatment by the assessee in its books of account as culled out from the paper book filed by the assessee-company are as follows: JUDGEMENT_12172_TLIT0_20080.htm The aforesaid statement makes it clear that the assessee-company-treated the impugned payment of Rs. 65.50 lakhs as deferred revenue expenditure in its books of account but claimed the deduction thereof as revenue expenditure in the computation of total income filed along with the return of income before the AO. The Assessing Officer however treated it as capital expenditure and disallowed the same. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A), who decided the issue in favour of the assessee against which the Revenue is now in appeal before this Tribunal.
(3.) IN support of appeal, Shri Shukla, the learned Commissioner for the Department (DR) took us through page 5 of the assessment order and submitted that cash deposits placed by the assessee with the Stock Exchange were not in the nature of "expenditure" incurred by the assessee but in the nature of deposits placed by the assessee and hence were not allowable as expenditure in terms of the plain language of Section 37(1) of the INcome-tax Act regardless of whether they were in the capital field or revenue field. He further submitted that the AO has also held that the INstructions issued by the Central Board of Direct Taxes for allowing deductions in respect of OYT deposits could not be applied, as the learned CIT(A) has done, to the deposits made for acquiring membership of a stock exchange. INviting our attention to the order of the learned CIT(A), he submitted that the learned CIT(A), without rebutting the finding recorded by the AO to the aforesaid effect, has allowed deduction in respect of the deposits made by the assessee with the Stock Exchange which was untenable in law.;

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