TaxTMI 
TaxTMI 
2014 (10) TMI 661
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....rticulars and to prove that the amounts now written back were actually sale receipts already offered to tax in earlier years. Yet another claim which was disallowed by the Assessing Authority was assessee had claimed lease foreclosure compensation paid of Rs..5.31 crores as revenue expenditure in nature. Whereas the Assessing Authority held it as capital expenditure and declined to grant the relief. The third claim relates to disallowance of depreciation of unused aircraft. 3. Challenging the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). 4. The commissioner of Appeals held that the unilateral action by the assessee in writing back a liability does not amount to the assessee enjoying the benefit to be brought back to tax as profit u/s 41(1) as held by the Supreme Court in the case of Kesaria Tea Co. Ltd., (254 ITR page 434). The Tribunal had taken that view in the case of the sister concern of the assessee. Following the same, the addition made by the Assessing Authority in this account was deleted. Insofar as disallowance of lease foreclosure compensation of Rs..5 crore 31 lakhs is concerned, it was held, when the Hon'ble Arbitrator has....
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....to manufacture IMFL by using own brand by regaining its business advantage and improving the right in the property acquired by it in the year 1993 as per the arbitration award? 3. Whether the Appellate Authorities were correct in allowing the expenses incurred in maintaining aircrafts and the depreciation over the same is allowable despite the assessee not establishing by maintaining any records that these aircrafts were used in the course of assessee's business? 6. Question No.1: In the return filed by the assessee it has added an amount of Rs. 445.75 lakhs as unclaimed credit balance and included the same as part of the book profit. However, the assessee excluded the same in the statement of income filed with a note that the old credit balance in the debtors and customers account amounting to Rs..4,45,75,446/- has been written back and claimed as exempted from tax relying on several judgments. Therefore, the assessee was claiming exemption contending that the conditions which requires to be fulfilled u/s 41(1) is not fulfilled. Section 41(1) reads as under: "Where an allowance or deduction has been made ....
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....f the assessee for the year. It is submitted that the statement is incorrect. The assessee has produced all the statements, invoices, particulars of tax to prove that the amounts written back were actually sale receipts already offered to tax in earlier years and the Assessing Authority has not looked into the same. In appeal the said statement was not produced before the Appellate Authority which the assessee could have done. However that appears to be not the case which is pleaded before the appellate tribunal. The appellate commissioner while considering the case of the assessee has held as under: "The AO has invoked the provision of section 41(1) to bring the said amount to tax. The same issue is discussed in detail in the case of the appeal for the same year of the sister concern M/s. United Breweries Limited. A copy of the said appellate order is annexed. The view taken by me in that case also hold good in the present case. Briefly stated on the basis of the latest Supreme Court decision Kesaria Tea Co. Ltd., 254 ITR 434, a unilateral action by the assessee in writing back a liability does not amount to the a....
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....findings recorded by the Appellate Authorities is based on no evidence and therefore, the same cannot be sustained. In our view, the proper course would be to set aside the orders passed by all the three authorities, remand the matter back to the Assessing Authorities giving liberty to the assessee to produce necessary records to show that the amounts are already included in sales turnover of respective years and it has suffered tax which if proved would enable the assessee to claim the benefit on the ground that it does not come under 41(1) of the Act. 11. Question No.2: The assessee company was under the agreement using the land, building and plant and machinery owned by a sister concern M/s Mysore Wine Products Limited for the manufacture of IMFL by using assessee's own brand i.e., McDowell. Since there were frequent labour trouble the production activity was leased to one M/s.Sapthagiri Distilleries Private Limited (SDPL) by way of an agreement by which SDPL was to produce and market assessee's brands and was not authorized to compete against assessee's business. This arrangement was made in 1986. Subsequently, in 1993, the assessee decided to take back the factory from SDPL, ....
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....Authority. Therefore, the question is, in the light of those findings whether this income amount of Rs..5.31 crores paid by the assessee to SDPL to reclaim business is a revenue expenditure or a capital expenditure. 12. The Apex Court in the case of Bikaner Gypsums Limited Vs. CIT (1990) 53 Taxman 279 (1991) 187 ITR page 39 has held as under: "The question whether a particular expenditure incurred by the assessee is of capital or revenue nature is a vexed question which has always presented difficulty before the Courts. There are a number of decisions of this Court and other Courts formulating tests for distinguishing the capital from revenue expenditure. But the tests so laid down are not exhaustive and it is not possible to reconcile the reasons given in all of them, as each decision is founded on its own facts and circumstances. Where the assessee has an existing right to carry on a business, any expenditure made it during the course of business for the purpose of removal of any restriction or obstruction or disability would b....
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....e on revenue account, even though the advantage may endure for an indefinite future. Similarly, where expenditure is incurred while the business is going on and is not incurred either for extension of the business or for the substantial replacement of its equipment, such expenditure would be revenue expenditure. If for running the business or working it with a view to produce the profits, if expenditure is incurred, it is a revenue expenditure. The Legislature has made a distinction between expenses incurred by a tenant for 'repairs' of the premises and expenses incurred by a person who is not a tenant towards 'current repairs' to the premises. This distinction has to be given a meaning. Perhaps the logic behind the distinction was that a tenant would, by the very nature of his status as a tenant, not undertake expenditure as would endure beyond his likely period of tenancy or create a new asset whereas, an owner may undertake expenditure so as to even bring about new assets of capital nature. It was, therefore, necessary to qualify the expenditure on repairs. It follows, therefore, that the cost of repairs that have been incurred by a tenant in respect of such premises would have ....
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....allowed an amount of Rs..5.31 crores paid till then by the assessee as the amount of compensation. The arbitrator has observed in the award, the assessee made a gain by running the distillery after its regain and it was able to remove the bottleneck for supply of raw material and finished goods and it also gained by avoiding compensation from SDPL. Insofar as loss sustained by SDPL is concerned, the arbitrator observed that the SDPL was loosing its source of income, loosing the time and funds it has spent in establishing the distillery. The Assessing Authority was of the view, the payment of compensation was basically to perfect a title, a right to manufacture on its own. It has regained its business advantage and the amount paid was for improving the right in the property. 16. From the aforesaid facts, it is clear this unit run by SDPL was running under loss. It was taken on lease by them from the sister concern of the assessee. Then the assessee granted the licence to manufacture the assessee's products. SDPL was in complete management of the factory, it successfully solved the labour problems, invested amounts in machinery and it was made into a profit making company. What was ....