TaxTMI 
TaxTMI 
TaxTMI 
2015 (5) TMI 119
X X X X Extracts X X X X
X X X X Extracts X X X X
....as revised later declaring a total loss of Rs. 17,56,66,329/-. 4. The Assessing Officer noticed that the assessee company had treated Rs. 38,62,33,200/- as a capital receipt on account of sales tax exemption granted by the Government of Gujarat, for establishing industries in the backward area of the Gandhar. The Assessing Officer did not accept the contention of the assessee company that the sales tax exemption was a capital receipt not chargeable to tax and determined this amount as a revenue receipt. 5. We need not advert to the rival contentions on this point or issue because in all fairness both sides have pointed out that one of the substantial question of law as proposed in the present Appeal is already admitted by this Court in Income Tax Appeal No.4157/2009 and between the same parties. In such circumstances, there is no difficulty in admitting this Appeal on question no.4(A). 6. Mr. Suresh Kumar, however would submit that all the questions as proposed are substantial questions of law and the Appeal, therefore, be admitted on the same. 7. However, Mr. Mistri, the learned Senior Counsel, appearing on behalf of the assessee company would submit that it is not necessary t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eline Project by making one time payment of Rs. 102,03,43,311/-, then, the assesse company had purchased a commercial right to operate and maintain the pipeline. Therefore, such asset was clearly capital in nature. Mr. Suresh Kumar submits that even the question no. (D) is a substantial question of law because the Tribunal erred in allowing the entire expenditure of Rs. 1,07,02,2000/- incurred by the assessee company in respect of registration fees and stamp duty paid on the lease transactions entered by it with ICICI Ltd. This could not have been allowed in the first year itself and the Assessing Officer had rightly apportioned it. It was spread over the entire lease period of 25 years. 11. In relation to these questions, Mr. Mistri would submit that the factual findings of the Tribunal are in consonance with the law laid down and repeatedly by the Hon'ble Supreme Court. He relies upon the judgment of the Hon'ble Supreme Court in case of Commissioner of Income Tax v/s. Madras Auto Service(P.) Ltd. reported in (1998) 233 ITR 468. He submits that the Hon'ble Supreme Court has earlier laid down the principle as to when an expenditure could be said to be capital or revenu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r of Income Tax (Appeals) confirmed the order of the assessing officer. 14. The aggrieved assessee, therefore, approached the Tribunal and the Tribunal's attention was invited to the judgments of the Hon'ble Supreme Court right from the case of Assam Bengal Cement Co. V/s. CIT (1955) 27 ITR 34 and equally the judgment in the case of Madras Auto Service (supra) where very extensive arguments were canvassed. The Tribunal found that the contract with M/s. Dodsal Ltd. was of December 1995. Pursuant thereto, Dodsal built, maintained and operated the Dahej Gandhar Vadodara pipeline for an approximate distance of 107 kms. The said pipeline was commissioned in May 1997. The assessee company, as per the agreement was obliged to pay Rs. 2.47 crores per month minimum guaranteed amount to Dodsal as the charges in terms of the agreement. The agreement could have been terminated in ordinary course after 15 years from the date of commissioning. It can also be terminated if there was a breach of the contract or taking over of the assets after 5 years of commissioning based on a mutual understanding. Nothing of this nature transpired and the agreement continued. The pipeline was vital for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rs. 1,000 per month for the first fifteen years, Rs. 1,500 per month for the next ten years, Rs. 1,650 per month for the next ten years and Rs. 2,000 per month for the remaining years. The lease deed further provided that the new construction shall, right from the commencement of the work, be the property of the lessors; and upon completion of the work of construction the lessee will have only the right to be a tenant for a period of 39 years under the existing lease subject to the payment of rent and observation of other terms and conditions of the lease. The lessee shall not be entitled under any circumstances for any compensation whatsoever on account of its putting up the new construction in the place of the old. Acting under the lease agreement the assessee invested a sum of Rs. 1,62,835 in the previous year relevant to the assessment year 1968-69 and Rs. 50,937 during the succeeding year in constructing a new building on the said land. The assessee claimed before the Income Tax Officer the expenditure of the said sums of Rs. 1,62,835 and Rs. 50,937 in the relevant assessment years as capital loss. In the alternative, the assessee claimed depreciation on capital investment; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of a new building at a low rent. From the business point of view, therefore, the assessee got the benefit of reduced rent. The High Court has, therefore, rightly considered this as obtaining a business advantage. The expenditure is, therefore, to be treated as revenue expenditure. All these cases have looked upon expenditure which did bring about some kind of an enduring benefit to the company as a revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expense has been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. In the present case also, since the asset created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern premises at a low rent, thus saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the conclusion that the expenditure should be looked upon a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e. This Court had in the case of CIT V/s. Abbott Laboratories (I) Pvt. Ltd. reported in (1993) 202 ITR 818, the judgment which has been relied upon had dealt with such an issue. That when the expenditure is incurred by the assessee for rationalizing, better administration and modernization of its machinery with a view to obtain maximum benefit out of the existing resources, even that expenditure is allowable in nature. It could not be treated to be a capital one. The expenditure was incurred to improve the production of the existing project, to improve the facilities and obtain increase in profitability by the use of existing assets and resources. In these circumstances, the Tribunal's conclusion while reversing that of the Assessing Officer cannot be termed as perverse or vitiated by any error of law apparent on the face of the record. We do not think that the Appeal raises any substantial question of law in relation to this issue. 20. Then, question no.(F) pertains to a deduction. That is a contribution of Rs. 40,25,388/- made by the assessee company to various clubs ran by and meant for the staff and their family at various places. Mr. Suresh Kumar placed reliance upon sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....family. The Tribunal considered the arguments and particularly that in the earlier assessment years the very issue was considered by it and that the Commissioner merely relied upon this view in allowing the assessee's claim. The Tribunal has not rendered any independent conclusion but followed and applied its earlier view. It held that there is no difference in the facts and circumstances. 23. However, we are of the prima facie view that once the two legal provisions having been pointed out to us, this view taken by the Tribunal and on facts will not bind the revenue. It would not definitely bind this Court in not entertaining and admitting this Appeal on the said point. In the light of the rival contentions, the Appeal deserves admission even on this point. It is therefore, admitted. 24. As far as question no.(G) is concerned, we are of the considered view that bearing in mind, the tax effect and only in the sum of Rs. 2.66 lakhs that this question does not deserve to be admitted. The negligible and in any event minimal tax effect, thus, would prevail over this Court in not entertaining the Appeal and admitting on question no.(G). 25. As a result of the above discussion, th....