AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (5) TMI 1628
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....in holding that Explanation 1 to Section 41(1) of the Act was not retrospective in nature and thus, was not applicable to the present assessment year? (iii) Whether the ITAT was right and justified in treating the payment of expenses amounting to Rs. 4,50,84,615/- as revenue expenditure even when the same were capitalized and entered as pre-operative expenses by the assessee itself in its books of accounts? (iv) Whether the ITAT was justified in deleting the addition of Rs. 16,00,000/-, being liability in respect of leave and licence fees payable to Kanoria Industries Ltd. written back by the assessee, inspite of the specific provisions of Section 41(1) and its Explanations? (v) Whether the ITAT was justified in allowing the expenses of Rs. 50,000/-, as Labour Welfare expenses even when the assessee has failed to show that the said amount was wholly and exclusively utilized for business purposes? (iv) Whether the ITAT was justified in deleting the disallowance of Rs. 43,032/-, being 1/5th of depreciation on vehicle, disallowed on account of personal use, even when no justification was provided by the assessee?'' Appeal No. 129 / 2008 "(i) Whether the ITAT was right and j....
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....s in view of the orders of the lower authorities, material available on record as well as the decision relied on by the Ld. AR, we are not inclined to interfere with the first appellate order, as the ld. CIT (A) has rightly deleted the addition with the observation and finding on the issue at page no. 6 and 7 of the first appellate order, relevant extract of which are being reproduced hereunder for a ready reference. ".......... According to this incentive scheme the incentive was given in sugar projects to make them viable, the repayment of loan has to be by surplus funds generated through higher free sale of levy sugar the extra amount collected is meant to be utilized for repayment of loan. The submission of the appellant is that he is collecting this amount with an obligation to make repayment of term loan advanced by Central Financial Institutions & therefore it cannot be treated as part of his income. He relied on SC case in CIT Vs. Bijali Cotton Mills P. Ltd. 116 ITR 60 & also in CIT Vs. V.P.J. Chemicals 210 ITR 830. According, to assessee this is an amount which ultimately is to be utilized to encourage the entrepreneur to opt for extension. This similar issue came up for....
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....bility by way of remission or cessation thereof, the amount obtained by him". Thus, the section contemplates the obtaining by the assessee of an amount either in cash or in any other manner whatsoever or a benefit by way of remission or cessation and it should be of a particular amount obtained by him. Thus, the obtaining by the assessee of a benefit by virtue of remission or cessation is sine qua non for the application of this section. The mere fact that the assessee has made an entry of transfer in his accounts unilaterally will not enable the department to say that section 41 would apply and the amount should be included in the total income of the assessee. The reasoning of the High Court is correct and we are in agreement with the same. 6. Learned counsel also referred to the judgment of the Bombay High Court in CIT v. Bennett Coleman & Co. Ltd. The Bench held that it was difficult to accept the contention of the assessee that cessation of liability can take place only as a result of a bilateral act, but it will depend upon the facts of each case. The Bench pointed out that there may be cases where the liability is not barred by operation of law, but in such cases bilateral ....
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....ithout any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Apart from that, that will not by itself confer any benefit on the debtor as contemplated by the section." 7. Other decision on the issue is reported in Chief Commissioner of Income Tax Vs. Kesaria Tea Co. LTD.: (2002) 254 ITR 0434, wherein it has been observed as under: "4. It may be noted that the provision was made in the books of account towards purchase tax which was under dispute and the benefit of deduction from business income was availed of in the past years in relation thereto. The same was sought to be reversed by the assessee during the year ending on 31.3.1985 for whatever reason it be. The question is whether the circumstances contemplated by Section 41(1) exists so as to enable the Revenue to take back what has been allowed earlier as business expenditure and to include such amount in the income of the relevant assessment year i.e. 1985- 86. In order to apply Section 41(1) in the context of the facts obtaining in the present case, the following points are to be kept in view : (1) In the course of assessment for an earlier year, allowance or deduction....
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....on 1 to Section 41(1)." 8. Therefore the issue is answered in favour of assesssee and against the department 9. Issue No. 3 : It relates to payment of interest used for purchased of capital assets. The same is squarely covered by the decision of Supreme Court in the case of Empire Jute Co. LTD. Vs. Commissioner of Income Tax: (1980) 124 ITR 0001, wherein it has been held as under: "4. In the first place it is not a universally true proposition that what may be a capital receipt in the hands of the payee must necessarily be capital expenditure in relation to the payer. The fact that a certain payment constitutes income or capital receipt in the hands of the recipient is not material in determining whether the payment is revenue or capital disbursement qua the payer. It was felicitously pointed out by Macnaghten, J. in Race Course Betting Control Board v. Wild 22 TC 182 that a "payment may be a revenue payment from the point of view of the payer and a capital payment from the point of view of the receiver and vice versa. Therefore, the decision in Maheshwari Devi Jute Mills' case (supra) cannot be regarded as an authority for the proposition that payment made by an assessee f....
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....he court therefore concluded that this was really a case of sale of loom hours and not of exploitation of loom hours by permitting user while retaining ownership and, in the circumstances, the amount received by the assessee from sale of loom hours was liable to be regarded as capital receipt and not income. It will thus be seen that the entire case proceeded on the commonly accepted basis that loom hours were an asset and the only issue debated was whether the transaction in question constituted sale of this asset or it represented merely exploitation of the asset by permitting its user by another while retaining ownership. No question was raised before the court as to whether loom hours were an asset at all nor was any argument advanced as to what was the true nature of the transaction. It is quite possible that if the question had been examined fully on principle, unhampered by any pre-determined hypothesis, the court might have come to a different conclusion. This decision cannot, therefore, be regarded as an authority compelling us to take the view that the amount paid for purchase of loom hours was capital and not revenue expenditure. The question is res Integra and we must p....
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....e transferee mill could work its looms for longer hours than permitted under the working time agreement and increase its profitability. The amount spent on purchase of loom hours thus represented consideration paid for being able to work the loom for a longer number of hours. It is difficult to see how such payment could possibly be regarded as expenditure on capital account. 6. The decided cases have, from time to time, evolved various tests distinguishing between capital and revenue expenditure but no test is paramount or conclusive. There is no all embracing formula which can provide a ready solution to the problem; no touchstone has been devised. Every case has to be decided on its own facts keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. But a few tests formulated by the court may be referred to as they might help to arrive at a correct decision of the controversy between the parties. One celebrated test is that laid down by Lord Cave, L.C. in British Insulated and Helsby Cables Ltd. v. Atherton 10 TC 155 where the learned Law Lord stated : "....When an expenditure is made, not only once and for all, but wit....
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.... six months and, moreover, the additional working hours per week transferred to the assessee have to be utilised during the week and cannot be carried forward to the next week. It is, therefore, not possible to say that any advantage of enduring benefit in the capital field was acquired by the assessee in purchasing loom hours and the test of enduring benefit cannot help the Revenue. Another test which is often applied is the one based on distinction between fixed and circulating capital. This test was applied by Lord Haldane in the leading case of John Smith & Son v. Moore 12 TC 266 where the learned law Lord draw the distinction between fixed capital and circulating capital in words which have almost acquired the status of a definition. He said : "Fixed capital (is) what the owner turns to profit by keeping it in his own possession; circulating capital (is) what he makes profit of by parting with it and letting it change masters." Now as long as the expenditure in question can be clearly referred to the acquisition of an asset which falls within one or the other of these two categories, such a test would be a critical one. But this test also sometimes breaks down because ....
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....t the assessee acquired a source of profit or income when it purchased loom hours. The source of profit or income was the profit making apparatus and this remained untouched and unaltered. There was no enlargement of the permanent structure of which the income would be the produce or fruit. What the assessee acquired was merely an advantage in the nature of relaxation of restriction on working hours imposed by the working time agreement, so that the assessee could operate its profit-earning structure for a longer number of hours. Undoubtedly, the profit earning structure of the assessee was enabled to produce more goods, but that was not because of any addition or augmentation in the profit making structure, but because the profit making structure could be operated for longer working hours. The expenditure incurred for this purpose was primarily and essentially related to the operation or working of the looms which constituted the profit earning apparatus of the assessee. It was an expenditure for operating or working the looms for longer working hours with a view to producing a larger quantity of goods and earning more income and was therefore in the nature of revenue expenditure.....