Exp. incurred by ‘Apollo Tyres’ to purchase equipments for its dealer’s showroom is capital expenditure: HC

Case details: Apollo Tyres Ltd. v. DCIT Ernakulam - [2021] 130 taxmann.com 296 (Kerala- High Court)

Judiciary and Counsel Details

• • S.V. Bhatti and Bechu Kurian Thomas, JJ.
  • Joseph Markose, Sr. Counsel, V. Abraham Markos, Binu Mathew, Mathews K. Uthuppachan, Terry V. James and Tom Thomas Kakkuzhiyil, Advs. for the Appellant. P.K.R. Menon and Jose Joseph and Christopher Abraham for the Respondent.

Facts of the Case

The appellant was a public limited company engaged in the business of manufacture and sale of tyres, tubes, and flaps. The assessee claimed expenditure on purchase of equipment such as wheel balancer, wheel aligner, wheel changer and tyre changer for the use by dealers of assessee as revenue expenses.

However, the Assessing Officer (AO), referring to the audit report of the assessee, treated the expenditure as capital expenditure and allowed depreciation on it.

The assessee preferred an appeal before the CIT(A). The CIT(A) held that these expenses were initially capital in nature i.e., creating assets of enduring nature but the ownership has been passed on to the dealer and therefore, the expenses were publicity expenses to be allowed as revenue expenditure in the hands of the assessee.

On appeal by revenue, Tribunal found that the assessee had installed equipment, which can be removed and taken back and reused in some other place. Further, Tribunal noted that the assessee would continue to be the owner of these equipments, though they were installed in the premises of the dealers. Hence, Tribunal of view that they had to be considered as the capital assets of the assessee company. Aggrieved-assessee filed an appeal before the High Court.

High Court held

The High Court held that the spread-over utility or utilization of equipment over a period of a few years is not disputed in the assessee’s case. The location of equipment could be in the shops of respective dealers, or the dealers were allowed to use the equipment that cannot be understood as divesting the ownership of assessee on the equipment. Thus, the tribunal rightly considered the expenses incurred by assessee as capital expenditure.