NEW DELHI, MAY 10, 2013: THE issue before the Bench is - Whether one time conversion charges paid by assessee to municipal authorities for converting industrial unit into commercial, are to be treated as revenue in nature. NO is the Tribunal's answer.

Facts of the case

The assessee company is engaged in running sweet shops and fast food restaurants in various parts of Delhi. The AO made disallowance u/s 14A to the extent of Rs 53,918/- and also disallowed an amount of Rs.22,19,954/- which was paid by assessee company to MCD on account of conversion of its rented outlet from industrial unit to commercial unit. Further an amount of Rs 66,500/- was paid by assessee in respect of its rented showroom at Chandni Chowk as one time parking charges to MCD. The AO considered expenditures to be of enduring benefit to the assessee. The CIT(A) upheld the disallowance with respect to expenditure u/s 14A but deleted the disallowance made on account of conversion charges and parking charges.

On Appeal before the Tribunal the DR submitted that one time conversion charges and parking charges were in the nature of capital expenditure as the benefit of these expenses was of enduring nature. The AR argued that one of the shop was running for past 26 years which was suddenly asked to pay parking charges and parking was already there and, therefore, it has not resulted into benefit of enduring nature. In respect of conversion charges paid to MCD, it was argued that no new capital asset had come into existence as outlet was on lease.

Having heard the parties, the Tribunal held that,

++ the assessee had paid amounts for one time conversion charges and for parking charges at the two outlets, the benefits of which might accrue to the assessee for indefinite period of time yet these were incurred to enable the profit making structures to work more efficiently leaving the source or the profit making structure untouched and moreover, the expenditure were in the nature of levies/taxes paid by an assessee to a government authority for making available the required infrastructure to run the business efficiently and effectively. No infirmity in the order of CIT(A).

(See 2013-TIOL-337-ITAT-DEL)