Expenses on Development of Website : Capital or Revenue in nature
Expenses on Development may be treated as Revenue Expenditure. Enduring benefit is not the only criteria for determining whether the expenditure is of capital or revenue nature. The real intent of the expense is to be seen ie whether there is any accretion to the fixed capital of the assessee.
In the present case the assessee was engaged in travel business making arrangements such as booking tickets hotel rooms etc and had incurred Rs 20.23 lacs in the development of a website . The clients of the assessee could access the website for availing the services provided by the assessee.
The assessing officer had disallowed the expenditure as the expense was of capital nature as it provided enduring benefit to the assessee. Hence the AO treated the expense as Capital in nature.
It was decided by The Delhi High Court that a particular expenditure may result in enduring benefit but may not be of capital nature. What Is to be seen is the real intent and purpose of the expenditure and as to whether there is any accretion to the asset. In the given case there is no such accretion. The real purpose behind the creation is not to create an asset but to disseminate information to the clients about the assessee. The same was earlier achieved by means of brochures and pamphlets. The advancement in technology and widespread use of internet is a powerful medium to publicize the activities of the company to a larger spectrum at a much lower cost. Websites enable companies to do what printed brochures did in the past; but in a much more efficient manner and in a much shorter period.