TaxTMI 
TaxTMI 
2016 (2) TMI 711
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...., the I.T.A.T. was correct in holding that the payment of Rs. 8,06,254/made to Seltrust Engineering Co. Ltd. is a revenue expenditure ? (4) Whether on the facts and in the circumstances of the case, the I.T.A.T. was correct in holding that an amount of Rs. 29,52,638/incurred in construction of house of labourer is a revenue expenditure ?" 02] Accordingly, we have heard Shri Anand Parchure with Shri A.J. Bhoot, learned Advocates for the applicantdepartment and Shri K.P. Dewani, learned Advocate for the respondentassessee. 03] Shri Bhoot, learned Advocate points out that the first two questions are answered in favour of the department by C.I.T. (Appeals) also, while the later two questions are answered by that authority as also by the I.T.A.T. against the department. 04] He contends that the distinction between an existing project or services, consultation etc. utilized in relation thereto and similar services for the proposed/new project cannot stand on different footing, insofar as nature of expenditure is concerned. The nexus of said expenditure with the object can never be lost site of. Even if the new project can not be established, the amount spent therefor re....
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.... a ferro manganese plant or for beneficiation and agglomeration and for the purpose of setting up of ferro manganese plant. He has also recorded that this ferro manganese plant, however, has not been set up due to certain reasons. He has recorded that the assessee was called upon to show how these expenses could be allowed under the head "Research and Development" as claimed, and according to him, expenses clearly were of capital nature. He has thereafter mentioned two letters dated 14/02/1984 and 12/03/1984. He has reproduced contents thereof. In the process, he has also reproduced paragraphs 6 and 7 of the letter, dated 29/02/1984 sent by the assessee, wherein the assessee has pointed out the scope of work entrusted to consulting firm relates to upgrading of the quality of ore increasing the productivity of labour and also increasing the percentage of recovery from the crude ore. The assessee thereafter had pointed out that all these directly related to existing business of the company. In concluding part, while mentioning the payments, he has noted that the assessee furnished details of amount of Rs. 3,45,008/only in Statement No.22, while it should have given details of researc....
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....r as its research and development expenses were concerned. First line is found to be considering possibility of setting up a ferro manganese plant as well as beneficiation/ agglomeration plant, while second line is found to be developing the Ukwa mine operations by choosing better mining methods to optimize its production etc. 12] It has observed that second item or line is clearly in the course of carrying on existing business, by way of improvising its operations and profitability and, therefore, expenditure thereon qualifies as revenue expenditure. However, while dealing with first line or first item, it held that it would constitute capital expenditure as the same was aimed at acquisition of a new plant i.e. new capital assets. Thus, it has partly allowed the appeal of the assessee. 13] In further challenge at the instance of the assessee, the I.T.A.T. has passed the order on 21/01/1991. It needs to be mentioned that before the I.T.A.T., the department had filed a crossappeal and questioned the order of C.I.T. (Appeals) insofar as answers given by it to question Nos.3 and 4 before us is concerned. 14] The findings of the I.T.A.T. can be seen from paragraph 6 onwards. T....
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....expenditure, which is subject matter of last question. It has taken note of the fact that the assessee spent that amount on construction of AType quarters. Total amount spent is Rs. 49,44,263/and against it, the assessee received Government subsidy of Rs. 19,44,750/. The assessee was under obligation to provide quarters for labour and for that the assessee gave on lease various plots of land in Balaghat, Chikla and Beldongri to the Union of India on long leases. The Government undertook construction of quarters thereon and cost thereof was not to exceed Rs. 8,025/to Rs. 8,493.75 per unit. The Union of India, however, appointed the assessee as its agent for said purpose. The excess amount over this, if any, was to be borne by the assessee. There is a specific finding that the ownership and title in the structure vested in the Government and the assessee was liable to pay a rent of Rs. 2.50/per unit per month to the Government. The assessee was found to be only a lessee and its employees were entitled to occupy the quarters during their tenure as such. In this background, the expenditure has been found to be revenue in nature. 17] We have mentioned the facts from order of either b....
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....rsy is concerned, we find that the judgment of Supreme Court relied upon by Shri Dewani, learned Advocate in the matter of Commissioner of Income Tax vs. Madras Auto Service (P) Ltd., reported at (1998) 233 ITR 468 clinches the controversy. There while considering the issue, the Division Bench of Madras High Court finds that the assessee could not have claimed it as capital expenditure, as there was no capital asset generated by spending said amount. The expenditure has been held rightly classified as revenue expenditure. Paragraphs 4 and 5 in judgment of Hon. Apex Court reads as under : "4. The assessee in the present case has spend the amounts in question in order to construct a new building after demolishing the old building. The new building, however, from inception was to belong to the lessor and not to the assessee. The assessee,, however, had the benefit of the existing lease in respect of the new building at the agreed rent for a period of 39 years. The Tribunal has found, as a fact, that the rent as stipulated in the lease was extremely low. It has said that the area of the building was somewhere about 7000 sq.ft. The rental rate for the area in which the building....
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.... reported at 202 ITR 1. In the said judgment, assessee was setting up a new plant and expenditure incurred on travel of foreign expert to help the assessee in the matter has been held to be capital expenditure. The facts there show that during the years under consideration, the assessee had set up a new plant at Bhandup for manufacturing additional pharmaceutical goods. Thus, a capital asset there had come into existence & thus expenditure was directly relatable to it. 23] Here the capital assets has never come into existence and the I.T.A.T. has allowed travelling expenses or ore testing charges only as revenue expenditure. This treatment is only in dispute before us. The travelling expenses or manganese ore testing charges pertaining to the existing mine allowed by the I.T.A.T. in the present facts cannot be directly corelated with the acquisition of any capital asset. We, therefore, do not find anything wrong with said exercise undertaken by the I.T.A.T. & its answers to question no. 1 & 2. 24] In so far as answer to question no. 3 is concerned, it is clear that study undertaken by the foreign company ie M/s. Seltrust Engineering Company Limited, U.K. was in connection wit....