1990 (4) TMI 2 - HC - Income Tax

Tribunal rules contribution to Molasses Storage Reserve Fund as revenue expenditure, not capital.

The Tribunal ruled in favor of the assessee regarding the treatment of the contribution to the Molasses Storage Reserve Fund as a revenue expenditure. The ... Sugar Industry Issues Involved:The judgment involves the treatment of contribution to Molasses Storage Reserve Fund as revenue expenditure for the assessment year 1980-81 under the Income-tax Act, 1961.Summary:The Tribunal referred the question of law regarding the treatment of the contribution to Molasses Storage Reserve Fund as a revenue expenditure. The assessee, a limited company engaged in sugar manufacturing, created a reserve under the fund during the relevant accounting year and claimed it as a revenue expenditure. The Income-tax Officer initially disallowed the claim. On appeal, the Commissioner directed the allowance of the relief based on previous assessments. The Tribunal later deleted the addition made by the Income-tax Officer, leading to the Revenue's appeal.The respondent highlighted the Uttar Pradesh Sheera Niyantran Adhiniyam, 1964, which mandates occupiers of sugar factories to contribute to a fund for storage facilities. The Tribunal found that the contribution was incurred for business purposes and not of capital nature, as it did not enhance the company's capital structure. The Revenue's argument that the assessee did not make a contribution under the statute was dismissed as it was not raised before the Tribunal.The judgment answered the question in favor of the assessee, emphasizing that the expenditure was incurred wholly and exclusively for business purposes. The Judges concurred with the decision, and no costs were awarded.This judgment clarifies the treatment of contributions to statutory funds as revenue expenditure under the Income-tax Act, emphasizing the distinction between revenue and capital expenditures in business operations.