TaxTMI 
TaxTMI 
2016 (11) TMI 287
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of restructuring, rehabilitation & renewal of sick units to safeguard the interest of workers and any expenses incurred for that shall be revenue in nature only. 2.3 The learned CIT (A) has erred, both on facts and in law by treating bond expenses as capital in nature despite the fact that she herself has adjudicated that these are the expenses incurred for augmentation of working capital. In other words any expenses incurred for working capital especially on year to year basis can never be Capital expenses. 3. However without prejudice to above, even if it is accepted that Rs. 1.46 Crores expenses incurred are Capital in nature either fully or partially than 3.1 20 % of Capital expenses as included in total expenses be allowed as deduction as per proviso to sec 35 D (1) (ii) of the I-Tax act 1961 and 3.2 All revenue expenses as are included in total expenses of Rs. 1.46 Crores should be allowed as deduction u/s 37 (1) of the I-Tax act 1961. 4. That the appellant craves leave to add, amend or alter any of the grounds. 2. The facts in brief of the case are that the assessee company filed its return of income for the year under consideration on 28/11/2003 declaring a lo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Textile Corporation Limited (NTC) New Delhi for raising resources to start the process of giving VRS to surplus workers of NTC as a part of Rehabilitation of sick subsidiaries of NTC. Government of India herby permit NTC to issue Bonds for Rs. 500 crores (Rupees Five Hundred Crores only) through private placement for five years period.' 5. These facts were not properly examined by the Assessing Officer and Bond Issue Expenses were allowed as 'Revenue Expenditure1 without application of mind. Any expenditure incurred in connection with the restructuring of profit making structure or altering the character in structure of business is capital in nature. This has been clearly held by Gujarat High Court in the case of Commissioner of Income Tax Vs. Official Liquidator of Ahmedabad Manufacturing & Calico Printing Company Limited (244 ITR 156} (2000). In this case certificates of shares and bonds etc were issued in respect of restructuring of the mill by way of amalgamation and Court held that all the expenditure incurred in connection with the issuance of share certificates and bonds were nature of 'Capital Expenditure'." 2.1 In compliance to the direction of the Commissio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted that bonds were issued for acquisition, rehabilitation, restructuring or revival of sick textile units/undertakings, which was one of the business of the assessee and, therefore, the contention of the Assessing Officer that bonds were issued for non-business purposes, is not correct. He further submitted that the expenses under reference are of recurring nature and have been accepted by the Department in the subsequent assessment years from 2004-05 to 2010-11. He further submitted that learned Commissioner of Income-tax(Appeals) in assessment year 2007-08 has fully allowed the bond issue expenses and no further appeal has been preferred by the Income Tax Department against that order. In support of the alternative ground, the assessee submitted that if the said expenses are held to be capital in nature than assessee may be allowed 1/5th of amount as deduction under section 35D(ii) of the Act of the capital expenses and the revenue expenses included in Rs. 1.46 crore may be allowed as deduction under section 37(1) of the Act. In support of the alternative claim, the Authorized Representative relied on the following two decisions of the Tribunal: 1. ITA No. 2897/Del/2007, order ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the expenses accordingly. In view of above facts, we are not agreed with the contention of the Authorized Representative that bond issue expenses have been allowed by the learned Commissioner of Income-tax (Appeals) in A.Y. 2007-08 and thus we hold that the law of consistency is not applicable over the facts of the assessee. Further, we find that fact of expenses being primarily related to arranger fee etc. for issue of bond is not disputed between parties. Further, the object or the purpose for which the bonds were issued or fund has been utilized is also not in dispute between the parties. The only dispute is whether the object of acquisition, rehabilitation, restructuring or revival of old/sick units was a business activity of the assessee or not. 6. We have perused page no. 3 of the paper book of the assessee, which is a copy of the Tax Audit Report in form no. 3CD. It manifests from clause 8(a) of the said report that the business activity of the assessee mentioned is "manufacturing of cloths & yarns" and it is nowhere mentioned that the acquisition, rehabilitation, restructuring & revival of sick unit was a business of the assessee. The learned Authorized Representative has....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 10 Tax Cases 155 that an expenditure is made not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. I think that there is very good reason in the absence of special circumstances leading to an appropriate conclusion for treating such an expenditure as properly attributable not to revenue but to capital. Lawrence, J. laid a test in Southern vs. Borax Consolidated (1942) 10 ITR (Supp) 1 (KB) that where a sum of money is laid out for the acquisition or the improvement of a fixed capital asset it is attributable to capital but that if no alteration is made in the fixed capital asset by the payment, then it is properly attributable to revenue, being in substance a matter of maintenance, the maintenance of the capital structure or the capital assets of the taxpayer. Lord Bowen in City of London Contract Corporation vs. Styles (1887) 2 Tax Cases 239 has observed "You do not use it for the purpose of your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern. In Assam Bengal Cement Co. Ltd. vs. CIT (1955) 27 ITR 34 (SC) : TC 16R.841 Supreme Court said: "In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter of expenditure from capital to revenue. In this connection we may refer to the decision in the case of Raza Buland Sugar Co. Ltd. vs. CIT (1979) 8 CTR (All) 181 : (1980) 122 ITR 817 (All) : TC 16R.1054. The question related to allowing of the assessee-company for deduction of the amount paid to the lawyer in connection with the amalgamation which was claimed as its business expenses. The assessee-company was formed by the amalgamation of two companies namely, the Raza Sugar Company and the Buland Sugar Company. It was held that the legal expenses of Rs. 11,069 were incurred before the assessee-company came into being. They were integrally connected with the creation of the assessee-company and were clearly capital in nature. Yet in another case in relation to the amalgamation of the same company Allahabad High Court in the case of Raza Buland Sugar Co. Ltd. vs. CIT (1980) 123 ITR 24 (All) : TC 16R.1105 took the view that the expenses incurred in connection with the amalgamation had been incurred prior to its formation and were integrally connected with the creation of the assessee-company. The expenses were of capital nature and not allowable, but related to amalgamation expe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Revenue and against the Assessee . 7. In the light of the above decision of the Hon'ble Gujarat High Court, when we advert to the facts of the instant case, we find that the bonds have been raised for restructuring or rehabilitation of the sick mills through voluntarily retirement scheme of employees etc., the advantage is definitely of enduring nature to the assessee. The expenditure in the nature of interest on the bond is payable every year, which is an expense of recurring nature whereas the arranger fee paid by the assessee is one-time fee in connection with raising of bonds and thus the expenditure is covered over the maturity life of the bond. The expenditures on bond issue expenses has been incurred in connection with the restructuring of the various units of the company, which are profit-making centers. The expenses are having definite role in reorganizing the company and thus played a role in enhancing the value of the company. In view of the discussion, we hold that the bond issue expenses in the case of the assessee are not allowable u/s 37(1) of the Act as revenue expenditure. Thus, the ground no. 2 of the appeal is dismissed. 8. In ground No. 3, the assessee has r....