TaxTMI 
TaxTMI 
2016 (8) TMI 229
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....r the assessment year 2005-06: 30% deduction claimed for franchise income as discussed above 50,88,343/- Interest on Government Loan as discussed above 17,55,632/- Thiruvalluvar statue expenses as discussed above 45,34,350/- Prior period expenses as discussed above 8,20,616/- Government grants as discussed above 5,42,20,000/- Similar order was passed for the assessment year 2006-07 and the assessing officer has made the following additions: 30% deduction claimed from income from lease/ franchise of hotels 41,47,414/- Thiruvalluvar statue expenses as discussed above 45,34,350/- Loss on sale of assets 3,14,286/- Depreciation on coaches 7,45,813/- Grants from Government 1,88,97,000/- 4. Being aggrieved by the same, Tamil Nadu Tourism Development Corporation has filed two appeals in I.T.A.Nos.436/07-08 and 246/08-09 respectively. I.T.A.No.436/07-08 was partly allowed and I.T.A.No.246/08-09 was allowed, on all the grounds raised in the appeal. 5. Aggrieved by the order of C.I.T.Appeal No.436/07-08 dated 19.01.2010 for the assessment year 2005-2006 and C.I.T.(Appeal) No.246/08-09 dated 20.01.2010, fo....
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....alluvar statue is revenue in nature on the ground that the statue did not belong to the assessee? 2. Has not the Tribunal erred in overlooking the fact that the expenses incurred for providing protective coating to the statue with poly silicon has extended the 'life' of the statue and therefore the expenses resulting in an advantage of enduring benefit ought to have been classified as capital expenditure? 3. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the receipt of grants by the assess from the Central Government capital in nature? 4. Is not the Tribunal wrong in applying the facts of the AY 2005-06 to the AY 2006-07 and holding the receipt of grants by the assessee as capital in nature when in respect of the AY 2006-07, the grants were received by the assessee was for improving its existing infrastructure and not for bringing into existence any new asset? 5. Has not the Tribunal erred in overlooking the fact that the grants received by the assessee was for improving existing facilities and therefore the proposed expenditure for which money was received was only revenue in nature? 6....
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....facilities, at tourist destinations and according to him reading of the sanction orders would show that the money was invested only for meeting the existing infrastructure and therefore, the receipt was revenue in nature. He also added that the Tribunal failed to note that though money was received by the assessee for meeting its revenue expenditure for improving the existing facilities, and the Tribunal has failed to consider that the assessee had not utilised the same, and therefore, has to be treated only as a revenue receipt and added to the income of the year of receipt. 12. Inviting the attention of this court to the observation of the Tribunal that insofar as the grants given by the Government of India is concerned, the proposed projects were dropped and that the funds were directed to be kept as trust so that the same can be spent for other alternative projects as directed by the Government from time to time and in the above said circumstances, when the Tribunal itself expressed an opinion that it was not in a position to give a clear finding as to how the grants were expended, learned senior standing counsel for Income Tax department prayed that the matter be remitted t....
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.... judgments in L.H.Sugar Factory & Oil Mills (P) Ltd. vs. Commissioner of Income Tax reported in 125 ITR 293 SC, C.I.T. vs. Coats Viyella India Ltd reported in 253 ITR 667 Mad, C.I.T. vs. T.V.Sundaram Iyengar & Sons (P) Ltd reported in 186 ITR 276 SC, C.I.T. vs. Chemicals and Plastics Ltd reported 292 ITR 0115 Mad and CIT vs. Saw Pipes Ltd reported in 300 ITR 35 (Del), Mr.M.Vijayaraghavan, learned counsel for the respondent submitted that when expenditure was incurred on the asset not owned by the assessees, then the same has to be construed only as a revenue expenditure. At this juncture, he reiterated that the statue is not owned by M/s.Tamil Nadu Tourism Development Corporation Limited, Chennai/respondent/ assessee. 16. Learned counsel for the respondent submitted that both the Appellate Authority and the Tribunal, concurrently and rightly, both on facts and law, held that the department was not correct in disallowing the claim of the assessee, according to him, the well considered orders stated supra, cannot be termed as perverse, warranting interference. 17. On the substantial question of law relating to government grant, Mr.M.Vijayaraghavan, learned counsel for the respo....
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.... that if at all, it is only after completion of the project and if surplus remains unutilised and if the Government permits the implementing agency like, Tamil Nadu Tourism Development Corporation to treat the surplus income, such portion can be treated as income of the Corporation and that too, only for the year, for which the Government has permitted the Corporation to utilise any amount of the project as income. 20. Learned counsel for the respondent further added that till the Government issues appropriate orders enabling the Tourism Development Corporation to retain any portion of the grant as its income, the same can be treated as income of the Corporation in the year, in which the Government grants permission. It is also his submission that at the time of grant, there is an attendant obligation to utilise the entire amount for the project contemplated by the Government. No part of the same will constitute as income of the Corporation. According to him, merely because the Corporation could not give particulars as to how the grants were to be utilised in the future, it does not mean that the grant should be treated as income of the corporation in the first year only. 21.....
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.... of Rs. 45,34,350/- for the assessment year 2005-06 related to recurring expenditure like security charges, electricity charges, establishment charges and providing protective coating with poly silicon to the statue (Rs.34.00 Lakhs). As the entire expenditure incurred in Thiruvalluvar statue was of recurring nature and no capital expenditure is involved the expenditure may be allowed. Moreover all expenditure incurred towards Thiruvalluvar statue are of maintenance nature only as TTDC has been entrusted with the task of maintaining the Thiruvalluvar statue only by virtue of government order and as such TTDC does not have any ownership towards the Thiruvalluvar statue. I have considered the arguments of the assessee, but the contentions are not acceptable. As such there is no income directly derived from the statue by the Corporation but is an unrefutable fact that the Thiruvalluvar statue is a capital asset to the corporation through which a portion of income is earned. It is clear from the reply that the expenditure is capital in nature as a huge portion of it was spent for poly silicon coating by which the life of the statue can be increased. Thus cannot be allowed as deduction a....
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.... the Thiruvalluvar statue. It is learnt that an amount of Rupees One Crore so far collected on behalf of the Thiruvalluvar statue is available with the Shipping Corporation. As the developmental works have to be carried out immediately, I am to request that the Poompuhar Shipping Corporation may be requested to pay the amount to TTDC immediately. This department has also requested the Managing Director, Poompuhar Shipping Corporation separately to hand over the amount to the TTDC. I am therefore to request you to issue instructions to the official concerned to take over the maintenance of statue from the Tourist Officer, Kanniyakumari. Early action may also be taken to collect the amount from Poompuhar Shipping Corporation. This may be treated as 'Most Urgent'. Sd/- V.Ramadoss, Commissioner of Tourism Incharge. Copy to: The District Collector, Kanniyakumari at Nagercoil The Tourist Officer, Kanniyakumari The Secretary to Government, Information and Tourism Department, Fort St. George, Chennai - 600 009. A reading of the above said letter fortifies the contention of the respondent/as....
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....counsel for the respondent. 30. In L.H.Sugar Factory & Oil Mills (P) Ltd. vs. Commissioner of Income Tax reported in (1980) 125 ITR 0293, assessee therein, contributed a sum for meeting the cost of construction of roads in the area around the factory. Construction of roads around the factory, facilitated transportation of sugar cane. On the aspect, as to whether the assessee therein has acquired any asset of an enduring nature, the Hon'ble Supreme Court held in the negative. The Apex Court further held that no doubt the advantage secured for the business existing was of long duration inasmuch as it would last so long as roads continued to be in motorable condition, but it was not an advantage in the capital filed, because no tangible or intangible asset was acquired by the assessee nor was there any addition to or expansion of the profit-making apparatus of the assessee. 31. In respect of enduring benefit, it is also worthwhile to extract the judgment of the Hon'ble Apex Court in Empire Jute Co. Ltd. vs. CIT reported in (1980) 124 ITR 1 (SC), as follows: "There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, ma....
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.... is the nature of business, the nature of the expenditure, the nature of the right acquired, and their relation inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases." (Emphasis supplied) 35. In CIT vs. Ashok Leyland Ltd. reported in (1969) 72 ITR 143 (Mad) confirmed by the Hon'ble Supreme Court in CIT vs. Ashok Leyland Ltd reported in (1972) 86 ITR 549 (SC), it is held as follows: " The facts of each case, the attending circumstances revolving round the expenditure, the aim, object and purpose of the same, their impact on the assessee, particularly in matters relating to the future of the assessee's trade and business, whether it could be sustained on ordinary canons of commercial expediency simpliciter, whether it is a step in aid of future expansion or prolongation of life of an existing business, whether it is to secure an enduring benefit, whether the expenditure constitutes conceivable nucleus to form the foundation for the posterior profit earning, whether the expenditure could be viewed as an integral part of the conduct of the business and to avoid the inroads and incurs....
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....llowable as business expenditure. Hence, the AO is directed to delete the addition of Rs. 45,34,350/-." Setting out the same reasons, for the assessment year 2006 - 2007, the Commissioner of Income Tax (Appeals) held that the Assessing Officer should have allowed depreciation on the income incurred on Thiruvalluvar statue. 38. Considering the case of the assessee that the main object is to develop and carry on tourism in the State of Tamil Nadu and therefore, in the fitness of things the assessee Corporation was directed by the Government of Tamil Nadu to properly maintain the Thiruvalluvar statue and when the asset being, fully owned Government of Tamil Nadu Undertaking is bound by the orders of the Government, and when the business of the Corporation was to develop tourism, vide Common Order dated 12.08.2013 in ITA Nos.550 and 551/Mds/2010, the Income Tax Tribunal, held that as the expenditure incurred by the assessee for the purpose of maintenance of the statue is recurring in nature and the same is only a revenue expenditure. The Tribunal further held that it has to be seen that the statue Thiruvalluvar is a public property and not the property of the assessee corporation....
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....y the Calcutta High Court as under :-- "The true test of an expenditure laid out wholly and exclusively for the purposes of trade or business is that it is incurred by the assessee as incidental to his trade for the purposes of keeping the trade going and of making it pay and not in any capacity other than that of a trader. The question whether a particular expenditure is a revenue expenditure incurred for the purposes of the business must be determined on a consideration of all the facts and circumstances and by the application of the principle of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on, or conduct of, the business that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character the possession of which is a condition for the carrying on of the business, the expenditure should be regarded as a revenue expenditure incurred wholly and exclusively for the purposes of the business." (iii) In CIT v. Cominco Binani Zinc Ltd., reported in [1993] 204 ITR 56, the Calcutt....
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....the expenditure that is relevant and not the description given to it by the assessee in his books of account or other documents." (v) In CIT v. Madras Auto Service (P) Ltd., reported in [1998] 233 ITR 468 = 99 Taxman 575, it is held as follows: "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 expenses have 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 as revenue expenditure." 40. ....
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....r working it with a view to earn profit, it is a revenue expenditure. From the above decisions, it could be deduced that merely because there was expenditure incurred by the Corproation, that alone does not mean that the assessee had acquired any capital asset or enduring benefit or advantage when the object of incurring expenditure from out of the source from Poompuhar Shipping Corporation Limited is one of business expediency and therefore, it constitutes revenue expenditure. 44. Admittedly, in the case on hand, 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 expe....
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....overnment of India has said as follows: "13. The payment of Rs. 262.38 Lakhs (Rupees Two sixty two lakh and thirty eight thousand only) would be made to the State Government by adjusting the dropped projects as under: (i) Rs. 238.00 (Rupees two hundred and thirty eight lakh only) released to the Commissioner (Tourism), Government of Tamil Nadu for "Erection of Ropeway at Ooty in Tamil Nadu" vide sanction no.5-PSW920)/2004 dated 26.3.2004 (copy enclosed). (ii) Rs. 24.38 lakh (Twenty four lakh and thirty eight thousand only) out of an amount of Rs. 238.00 lakh released to the Commissioner (Tourism) Government of Tamil Nadu for "Erection of Ropeway at Kodaikanal in Tamil Nadu" vide sanction No.5-PSW(19)/2004 dated 26.3.2004. (copy enclosed). The balance amount of Rs. 213.62 lakh (Rs.238.00 lakh minus Rs. 24.38 lakh) would be adjusted against some other project in the future." 49. Now let us consider as to how the Assessing Officer has dealt with the issue relating to grants from Government. Grants from Government As per the notes and accounts (schedule (9), Point No.6), the assessee has received a sum of Rs. 542.20 Lakhs from various sou....
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....No.5 PSW (20) 2004/ dated 26.03.2004. (copy enclosed) ii) Rs. 24.38 (Rupees twenty four lakhs and thirty eight thousand only) out of an amount of Rs. 238.00 lakh released to the Commissioner (Tourism), Government of Tamil Nadu for "Erection of Ropeway at Kodaikanal in Tamil Nadu vide sanction No.5 PSW (19/2004) dated 26.03.2004 (copy enclosed). The balance amount of Rs. 213.62 lakh (Rs.238.00 lakhs minus Rs. 24.38 lakhs) would be adjusted against some other project in the future. Therefore appellant argues that since the projects are dropped and grants are to be adjusted to other projects in future, the said grant of Rs. 478.70 lakhs should not be treated as income." Considering the same, the Commissioner of Income Tax (Appeals), Chennai has noticed that a sum of Rs. 238 Lakhs each was granted for ropeways at Ooty and Kodaikanal from the total grant of Rs. 5,42,20,000/-, the projects relating to Rs. 4,76,00,000/- has been dropped as per G.O. dated 04.12.2008. Further, grants totalling to Rs. 63.5 Lakhs has been converted into equity shares by Government of Tamil Nadu. Thus, additions of Rs. 476 lakhs i.e. (Rs.238 x 2) lakhs of the Government of India grants on ....
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....t fit to consider the difference between capital receipts and revenue receipts, as generally understood. Capital receipts are the receipts, which do not form part of the normal trading or operating activity of the assessee. They are generally part of financing and investing activities of the assessee. Whereas, the revenue receipts arises through the business activities of the assessee. Revenue receipts are part of normal business operations. They are recurring. Benefits derived from the receipts are short-term. Whereas, the capital receipts are non-recurring in nature. The benefit derived is for long period. Capital receipts are amounts received in the form of corpus, infused into business. Corpus received from the normal business, for capital investment, is one of capital receipt. The nature of receipt is determined by the character, in the hands of the recipient. 56. The Tribunal has further held that the grants are not given for meeting the day-to-day expenses of the assessee corporation. On the aspect of grant, the Tribunal has also recorded that the grant has already been converted into equity capital. Therefore, it would not take partake the character of income. Tribunal h....