TaxTMI 
TaxTMI 
TaxTMI 
2016 (12) TMI 1658
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....d that the expenditure which has been shown by the appellant was revenue expenditure. He further submits that the CIT(A) while giving detailed reasons has held in favour of the assessee and has discussed the complete factual matrix. After taking into consideration, the facts in favour of the assessee, it held that the expenditure are revenue expenses. 4 In this regard, the order of the Tribunal reads as under:- "On consideration of the facts of the case as detailed by the A/R, it is seen that the amount had been paid to the contractor to remove the over-burden consisting of earth, rocks, bushes, etc., covering the minerals in the mines area of Fluorspar Mines of Bhinmal, District Jalore. Since these mines were already in operation since 1976, no new asset had been brought into existence as a result of the removal of the overburden. Continuous process of removal of overburden was to facilitate the continuous process of the mining in the area. Therefore, in this context the expenditure has to be regarded as revenue in nature. This ground of appeal is thus allowed." 5. Counsel for the appellant further contended that the tribunal has committed an error in reversing the view taken b....
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....and by the application of Principles 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 of the carrying on of the business, the expenditure may be regarded as revenue expenditure." 5.1 In case of Empire Jute Co. Ltd. vs. Commissioner of Income Tax reported in (1980) 124 ITR 0001, the Supreme Court held as under:- When dealing with cases of this kind where the question is whether expenditure incurred by an assessee is capital or revenue expenditure, it is necessary to bear in mind what Dixon, J. said in Hallstrom's Property Limited v. Federal Commissioner of Taxation(1): "What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the justice classification of the legal rights, if any, secured, employed or exhauste....
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.... the three companies together meant a cut of 27000 tons for the year in question. It was agreed between the three companies that for the purpose of giving effect to this cut, company should cease production for one year and that the assesses company and company R should undertake between them the whole group programme for the year reduced by the overall cut of 27000 tons and should pay compensation to company for the abandonment of its production for the year. Pursuant to this agreement the assessee paid to company 1,384,565 by way of its proportionate share of the compensation and the question arose whether this payment was in the nature of capital expenditure or revenue expenditure. The Privy Council, held that the compensation paid by the assessee to company in consideration of the latter agreeing to cease production for one year was in the nature of revenue expenditure and was allowable as a deduction in computing the taxable income of the assessee. Lord Radcliffe delivering the opinion of the Privy Council observed that the assessee's arrangement with companies R and "out of which the expenditure arose, made it a cost incidental to the production and sale of the output of ....
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.... on fair appreciation of the whole situation the expenditure incurred for a particular matter is of the nature of capital expenditure or a revenue expenditure. The Court laid down a simple test for determining the nature of the expenditure. It observed: Whether payments made by an assessee for removal of any restriction or obstacle to its business would be in the nature of capital or revenue expenditure, has been considered by courts. In Commissioner of Inland Revenue v. Carron Company, [1966-69] 45 Tax Cases 13 the assessee carried on the business of iron founders which was incorporated by a Charter granted to it in 1773. By passage of time many of its features had become archaic and unsuited to modern conditions and the company's commercial performance was suffering a progressive decline. The Charter of the company placed restriction on the company's borrowing powers and it placed restriction on voting rights of certain members. The company decided to petition for a supplementary Charter providing for the vesting of the management in Board of Directors and for the removal of the limitation on company's borrowing powers and restrictions on the issue and transfer of sh....
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....venue account even though the advantage may endure for an indefinite future. We agree with the view taken in the aforesaid two decisions. In our opinion where the assessee has an existing right to carry on a business, any expenditure made by it during the course of business for the purpose of removal of any restriction or obstruction or disability would be on revenue account, provided the expenditure does not acquire any capital asset. Payments made for removal of restriction, obstruction or disability may result in acquiring benefits to the business, but that by itself would not acquire any capital asset. In considering the cases of mining business the nature of the lease the purpose for which expenditure is made, its relation to the carrying on of the business in a profitable manner should be considered. In the instant case existence of Railway Station, yard and buildings on the surface of the demised land operated as an obstruction to the assessee's business of mining. The Railway Authorities agreed to shift the Railway establishment to facilitate the assessee to carry on his business in a profitable manner and for the purposes the assessee paid a sum of Rs. 3 lakhs towards ....
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....Benarsidas (7), which we have considered in detail earlier. They involved shortterm contracts, and in the Full Bench case it was stated that the case of long-term leases was on a different footing, though, in our opinion, the decisive factors in such cases will be the nature of the acquisition and the reason for the payment. Cases on the other side-of the line where payments were regarded as capital expenditure are Commissioner of Income-tax v. Chengalroya Mudaliar (8) and Chengalvaroya Chettiar v. Commissioner of Income-tax (9). There the expenditure was for a lease for excavation of lime shells. Since the lease conferred exclusive privilege and a new business regarded not as the right to win shells. All these cases turned on different facts, and it is not necessary to decide which of them in the special circumstances were correctly decided. This enquiry will hardly help in the solution of the case in hand. We are, however, satisfied that in this case the assessee acquired by his long-term lease a right to win stones, and the leases conveyed to him a part of land. The stones in situ were not his stock-in-trade in a business sense but a capital asset from which after extraction he ....