By TIOL News Service

NEW DELHI, SEPT 10, 2018: THE ISSUE IS - Whether service charge paid for availing basic services on sales, distribution, and accounting, which helps in carrying on day-to-day business activities can be treated as capital expenses. NO IS THE VERDICT.

Facts of the case

The assessee company, engaged in the business of trading of non-alcoholic beverages, had filed return for relevant AY. During assessment, AO noted that assessee had paid certain amount as Service charges to Coca Cola India Inc., in connection with certain advisory and support services received by it. The assessee received such services in the course of carrying on its day-to-day business and was in nature of accounting support, marketing advice and other support services. The AO held that service charges were paid for availing technical know-how in the field of accounting and marketing and, therefore, it was capital expenditure in nature. The AO allowed depreciation @ 25% thereon. On appeal, CIT(A) allowed the claim of the assessee holding that Service charges paid were Revenue in nature.

Tribunal held that,

++ the impugned expenditure incurred by the assessee was for availing certain services in the field of accounting, marketing advice and support services. The services are utilized by the assessee for carrying on day-to-day business activities. No enduring benefit was found to be available to the assessee by receipt of such services. Even if it is a know-how even then it will not give any benefit to the assessee unless the assessee is independently able to perform these activities without the help of the service provider in future. No such evidences are placed by revenue on record. The nature of the services is stated to be in the form of basic services on sales, distribution, and accounting. It was stated by the assessee to be of routine nature. The AO could not bring any material to show that such expenditure allowed to the assessee in 2003-04 was contested by Revenue at higher forum. Thus ground of the appeal of the Revenue is dismissed.

(See 2018-TIOL-1488-ITAT-DEL)