2016 (8) TMI 229 - HC - Income Tax

Court distinguishes revenue and capital expenses for Thiruvalluvar statue maintenance and Central Government grants

The High Court upheld that the expenses for maintaining the Thiruvalluvar statue were revenue in nature, not capital, as they did not involve acquiring a ... Expenses incurred in maintaining the Thiruvalluvar statue - enduring benefit - revenue or capital expenditure - Held that:- Asset Thiruvalluvar statue is not owned by the Tamil Nadu Tourism Development Corporation Ltd. Corporation has been entrusted with the only work of maintenance of the statue from out of the contribution made by Poompuhar Shippping Corporation. Business of the Corporation is tourism. Though Mr.M.Swaminathan, learned counsel for the appellant submitted that the Tribunal went wrong in adjudging the issue, with reference to the ownership of the statue and should have confined itself only to the issue as to whether, the expenditure incurred is capital or revenue, in the light of the judgments extracted supra, as to how ownership or acquisition of capital asset, but the expenditure incurred, has a bearing on the decision, as to whether the expenditure is capital or revenue, submissions to the contra, cannot be countenanced. Maintenance of the statue, may endure some benefit towards the conduct of the assessee's business, but the expenditure incurred cannot, at any rate, to be said as an advantage to the assessee in its capital field and thus the expenditure would be capital in nature, so as to disallow the expenditure incurred for maintenance of Thiruvalluvar statue by security charges, electricity charges, establishment charges and expenses for providing protective coating with poly silicon to the statue. Tribunal was right in holding that the expenses incurred by the assessee in maintaining the Thiruvalluvar statue is revenue in nature on the ground that the statue did not belong to the assessee - Decided against revenue Receipt of grants - revenue or capital - Held that:- When the details of the grant, clarificatory letters dated 22.06.2002 of the Commissioner of Tourism, Chennai and 04.12.2008 of the Ministry of Tourism, Government of India, respectively, produced before the Appellate Authority, have been considered as to how the expenses towards security charges, electricity charges, establishment charges and expenses for providing protective coating with poly silicon to the statue have been incurred and when the assessee, by producing the letter dated 04.12.2008, had convincingly explained as to how the grant has been made for specific purposes, some of which were dropped, and the obligation of the state government to return within six months and when the assessee has offered a reasonable explanation, both the Appellate Authority and Tribunal, have rightly held that the expenditure from the grant was capital in nature. When the grants were to be utilised for a capital asset, but some of the projects, dropped, receipts should be treated only as capital in nature. Reasoning of the Tribunal, on the issue as to whether the expenditure incurred from the grant is capital receipt or revenue is convincing. On both the issues discussed supra, finding recorded are concurrent with reasons. Revenue has not made out a case for answering the substantial questions of law raised in its favour.- Decided against revenue Issues Involved:1. Nature of expenses incurred in maintaining the Thiruvalluvar statue: revenue or capital.2. Nature of grants received from the Central Government: capital or revenue.Detailed Analysis:Issue 1: Nature of Expenses Incurred in Maintaining the Thiruvalluvar Statue: Revenue or CapitalThe assessee, Tamil Nadu Tourism Development Corporation Ltd., claimed expenses for maintaining the Thiruvalluvar statue as revenue expenditure. The Assessing Officer disallowed these expenses, classifying them as capital expenditure, arguing that the expenses provided an enduring benefit by extending the statue's life.The Tribunal and the Appellate Authority held that the expenses were revenue in nature. The Tribunal noted that the statue is public property, not owned by the assessee, and the expenses were recurring, related to security, electricity, and maintenance. The Tribunal relied on precedents where similar expenses were considered revenue expenditure, emphasizing the nature of the advantage in a commercial sense.The High Court upheld the Tribunal's decision, citing that the expenses facilitated the assessee's business operations without affecting the capital base. The Court referenced multiple judgments, including Empire Jute Co. Ltd. vs. CIT, which established that not every enduring advantage constitutes capital expenditure. The Court concluded that the expenses were for maintaining the statue, not for acquiring a capital asset, and thus were revenue in nature.Issue 2: Nature of Grants Received from the Central Government: Capital or RevenueThe assessee received grants from the Central Government for specific projects, which the Assessing Officer treated as revenue receipts. The Tribunal and the Appellate Authority classified these grants as capital receipts, noting that they were for developing infrastructural facilities and not for day-to-day expenses.The High Court reviewed the relevant documents, including a letter from the Ministry of Tourism, which specified that the grants were for specific projects and had to be returned if not utilized within six months. The Court affirmed that the grants were capital in nature, intended for long-term infrastructural development, and not for revenue expenditure.The Court emphasized that the nature of the receipt is determined by its character in the hands of the recipient. Since the grants were for capital projects and some were converted into equity, they did not constitute income. The Court found the Tribunal's reasoning convincing and upheld its decision, rejecting the Revenue's appeal for a remand.Conclusion:The High Court dismissed the Revenue's appeals, affirming that the expenses incurred for maintaining the Thiruvalluvar statue were revenue in nature and the grants received from the Central Government were capital receipts. The Court's decision was based on a thorough analysis of the nature of the expenses and grants, supported by relevant legal precedents and documentation.