2003 (2) TMI 20

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.... corresponding to the assessment year 1996-97. During the accounting year ending March 31, 1996, the company claimed the voluntary retirement scheme expenses amounting to Rs. 10,02,23,735 incurred at Borvile plant. As per the annual report, the voluntary retirement scheme expenses were to be written off within a period of 60 months. In the past, the company had incurred the voluntary retirement scheme expenses for other plants and under the books of the company, such expenses were written off over a period of 36 months. Therefore, when for the accounting year ending March 31, 1996, the voluntary retirement scheme expenses amounting to Rs. 10,02,23,735 incurred for Borvile plant came to be written off within 60 months, the officer disallowed....

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....er section 260A of the Income-tax Act. The question of law on which our opinion is sought is question "B", which reads as follows: "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in allowing the liability as revenue expenditure or it should be spread over the same by taking into consideration, the years for which the scheme is to be implemented and consider the tax effect exceeding the limit prescribed by the Board?" Question "A" falls in question "B" and, therefore, we have reframed a composite question quoted above. Arguments: Mr. R.V. Desai, learned senior counsel appearing on behalf of the Department, vehemently urged that the payment of VRS resulted in a benefit of enduring nature to....

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....ses were incurred in the capital field as the Assessing Officer has himself proceeded to give deduction to the assessee to the tune of Rs. 33,40,818. He pointed out that even according to the Department, the said expenses were revenue expenditure and it is for this reason that the Assessing Officer has given deduction of a smaller amount of Rs. 33,40,818 as against the assessee's claim for deduction of Rs. 10,02,23,735. Mr. Mistry submitted that there was no merit in the alternative argument of the Department. He contended that in this case the concept of deferred revenue expenditure was not applicable as no continuing benefit accrued to the assessee beyond the assessment year in question. He contended that, in this case, there is no findin....

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....dings: As stated above, the first contention advanced on behalf of the Department was, the voluntary retirement scheme expenditure was not deductible as it was capital in nature. The Department is estopped from raising this contention. The assessee claimed deduction of Rs. 10,02,23,735 for the accounting year ending March 31, 1996. However, the Assessing Officer restricted the deduction at Rs. 33,40,818. Consequently, the Assessing Officer disallowed Rs. 9,68,82,917 as excess claim. The assessee preferred an appeal to the Commissioner of Income-tax against disallowance of Rs. 9,68,82,917. No appeal was preferred by the Department against the order of assessment. In the circumstances, it is not open for the Department now to contend that ....

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....r, on the facts, the Department had doubted the bona fides of the scheme. In such circumstances, the court took the view that in cases of deferred revenue expenditure, because of its special feature, its spread over is warranted. In Taparia Tools Ltd.' s case [2003] 260 ITR 102 (Bom), the life of non-convertible debenture (NCD) was five years and under the NCD, there was a stream of income coming in over a period of five years and the court was, therefore, required to apply a matching concept. In the case of Taparia Tools Ltd. [2003] 260 ITR 102 (Bom), there was a categorical finding of fact recorded by the Assessing Officer regarding the income stream benefit extending over the life of the NCD. On the other hand, in the present case, there....

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....in its books over a period of years. It is only in cases of special type of assets that the spread over is warranted. In the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC), it has been held by the Supreme Court that there are cases where the test of enduring benefit may break down. In that case, expenditure was incurred to remove certain restrictions on the number of working hours so that the assessee could increase its profits. The company was a member of the Indian Jute Mills Association which was floated to protect the trade. The members of the association had undertaken to work their looms for a limited hours every week. The "loom hours" were bought by the assessee from another member to increase the profits. The question whi....