TaxTMI 
TaxTMI 
TaxTMI 
2016 (9) TMI 1497
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....nce. ITA No.101/Mds./16(A.Y: 2011-12) 2. The first ground in this appeal is with regard to deletion of addition made by AO on account of disallowance of deduction u/s.80-IA of the Act amounting to Rs. 2,89,77,784/-. 3. We have heard both the parties and perused the material on record. In our opinion, this issue is squarely covered by the order of the jurisdictional High court in the case of Velayudhaswamy Spinning Mills (P) Ltd vs. ACIT 340 ITR 477, wherein it was held that:- "from reading of sub-s (1) of s. 80IA, it is clear that it provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-s (4) i.e. referred to as the eligible business, there shall, in accordance with and subject to the provisions of the sections, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100 per cent of the profits and gains derived from such business for ten consecutive assessment years. Deduction is given to eligible business and the same is defined in sub-s. (4). Sub-s(2) provides option to the assessee to choose 10 consecutive assessment years....
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....re already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under S.80-IA(2). In Tax Case No.918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive profit during the relevant year. Therefore, loss in the year earlier to initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profit of the eligible business as no such mandate is provided in S. 80-IA(5) - CIT vs. TTK Pharma Ltd (Tax Case (Appeal ) No.298 of 2004, dt. 23rd Dec., 2009) Followed; CIT vs. Mewar Oil & General Mills Ltd (2004) 186 CTR (Raj) 141; (2004) 271 ITR 311 (Raj) concurred with; Mohan Breweries & Distilleries Ltd vs. Asst. CIT (2008) 114 TTJ (Chennai) 532: (2008) 3 DTR (Chennai) (Trib) 477 affirmed''. 4. Accordingly, we are of the opinion that the Commissioner of Income Tax (Appeals), Coimbatore is justified in deciding the issue in favour of the assessee. This ground raised by the R....
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....according to the buyer's specifications. The assessee paid the sum of Rs. 650 lakhs M/s. Cibi International to prepare and commit to the work entrusted by the assessee company without any hitch or hindrance. The assessee felt that instead of acquiring its own infrastructural facilities, it is more economical to utilize the facilities of a competent associate, so that the assessee need not incur recurring expenditure for the maintenance of infrastructural and operational facilities. Once the assessee paid Rs. 650 lakhs to M/s. Cibi International, the said associate would procure all the necessary facilities to make the operations to the satisfaction of the business interests of the assessee. More particularly, the assessee has paid Rs. 650 lakhs to M/s. Cibi International to execute huge export order and the said associate could update its operational facilities to the required standards for the advantage of the business of the assessee. 8. The assessee claimed this amount of Rs. 650 lakhs as a deduction in computing its taxable income for the impugned assessment year. The deduction has been claimed under sec.37 of the Act. But the Assessing Officer did not allow the above deducti....
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....and, was bound to execute production orders in conformity to the quality standard prescribed by the foreign buyers. As per the agreement, M/s. Cibi International was also bound to repay the sum of Rs. 650 lakhs to the assessee company, if M/s. Cibi International fails to perform the obligations cast on it. Since such a liability is cast on M/s. Cibi International as per the agreement, M/s. Cibi International might have shown the amount of Rs. 650 lakhs as a liability in its balance sheet. Such a disclosure in the balance sheet of M/s. Cibi International need not influence in deciding the real character of the payment of Rs. 650 lakhs made by the assessee company. 12. It is very difficult to accept the findings of the lower authorities that by paying Rs. 650 lakhs, the assessee company had acquired new capital asset of enduring benefit. There is no dispute on the fact that the facilities were created in the work place of M/s. Cibi International and not in the premises of the assessee company. Therefore, if at all any new asset is created by utilizing this amount, that asset is owned by M/s. Cibi International. The right of the assessee is only to utilize such facility for the purp....
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....n facilities available with the latter would be utilized for producing the knitted goods required by the assessee company for meeting its export commitments. While taking the decision to rely on M/s. Cibi International for availing production facilities rather than acquiring such facilities by itself, the assessee company has assessed the economy of scale and all other operational and business considerations. In its wisdom, the assessee found that it is more economical to pay a lump sum amount to M/s. Cibi International to develop the production facilities for assessee's own business, rather than establishing such facilities in its own work place. Therefore, it is not possible to question the business decision arrived at by the assessee company, unless it is otherwise proved to be a device to conceal any ulterior motive. Such allegations are anyhow not made in the present case. 16. Therefore, the simple fact emerging out of the discussion is that the assessee company instead of creating the facilities in its own premises, selected M/s. Cibi International to shoulder the responsibility of the production of knitted garments utilizing their facilities and to improve the facilities, ....
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.... revenue expenditure. 6.1 The facts of the issue are that the AO had treated the amount as capital expenditure as the super structure of the building has been constructed on leased land by the assessee. The main reason for disallowance by the AO is that huge amount of money has been spent without getting ownership over the land which is leasehold. The AO has invoked the Explanation 1 to sec.32(1) to hold that expenditure is capital in nature and the claim made by the assessee is rejected. On appeal, the Ld.CIT(A) relied on jurisdictional High Court of Madras in the case of TVS Lean Logistics Ltd.,(293 ITR 432) wherein held that because the assessee did not acquire a capital asset viz. the land, in the instant case, but has put up a construction of the building only for the business advantage, the entire construction cost is admissible as the revenue expenditure. Further, Ld.CIT(A) observed that though the AO has made a statement that the lease deed is a sham transaction, evidence to corroborate this has not been brought on record. Considering the binding nature of the jurisdictional High Court the addition made invoking Explanation 1 to Sec.32(1), treating the amount of Rs. 4,06,2....
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....ion cost was admissible as revenue expenditure. 2. In the case of CIT Vs.Bombay Dyeing & Mfg. Co. Ltd., reported in 219 ITR 521(SC) wherein held that A company was amalgamated with the assesseecompany. In that connection an expenditure of Rs. 10,350 was incurred by the assessee-company towards professional charges paid to a firm of solicitors. In the assessment proceedings, deduction of the said amount was claimed as revenue expenditure. The Income-tax Officer and the Appellate Assistant Commissioner rejected the claim but the Tribunal allowed it on the ground that as both the companies were carrying on complementary business and their amalgamation was necessary for the smooth and efficient conduct of the business, it was an expenditure laid out wholly and exclusively for the purpose of the business of the assessee. The Tribunal refused to make a reference and the High Court rejected an application to direct reference. On appeal to the Supreme Court: Held, dismissing the appeal, that the expenditure incurred towards professional charges of the solicitors' firm for the services rendered in connection with the amalgamation was in the course of carrying on of the assessee'....
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....e constructed the building in the leased land and it is not the case of renovation of the leased building or improvement of the leased building. For settling the controversy, we have to go through the Explanation 1 to sec.32(1) of the Act which was inserted by the Taxation Laws (amendment and Miscellaneous Provisions) Act, 1986 w.e.f 1.4.1998 which deals with the situation where the expenditure has been incurred by the assessee on construction of any structure on lease hold premises. The Explanation 1 is reproduced herewith below:- Explanation 1.- Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work, in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. 6.5 To fall within the ambit of Explanation 1 questions which are to be answered are: (i) W....
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....ting a building which belonged to somebody else and spending money for 214/Coch/2014 such reconstruction? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was a saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure. Moreover, assessee in the present case did not get any capital asset by spending the said amounts. The assessee therefore could not have claimed any depreciation. Looking to the nature of the advantage which the assessee obtained in a commercial sense, the expenditure appears to be revenue expenditure." 6.8. Furhter Jurisdictional High Court in the case of CIT Vs. Hari Vignesh Motors P. Ltd in [2006] 282 ITR 338 (Mad) held as follows:- Held: dismissing the Revenue's appeal, that the assessee had put up the ground floor over the exis....
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....tion to and by way of renovation or extension or improvement in the building. 9. If the answer to the aforementioned questions is in affirmative, the assessee falls within the purview of Explanation 1 to sec. 32(1). In the instant case, it is an admitted fact that the assessee has taken land on lease for setting up of project for processing of coir. It is also undisputed that the assessee has constructed the building at the leased premises. Thus the assessee has constructed super structure. These construction activities carried out by the assessee if put on to the test of Explanation 1 would show that the construction made by the assessee on the leased out premises would amount to capital expenditure. The assessee in order to support his case has relied on the judgment of the Madras High Court in the case of TVS Lean Logistics Ltd. (supra). In the said case, the assessee had constructed a building on the leased land for the business advantage. The Court held that the entire cost of construction is admissible as revenue expenditure. Explanation 1 categorically states that the business or profession is carried on in a leased building and not on land. The High Court in para 4.4 of t....
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....e present case did not get any capital asset by spending the said amounts. The assessee therefore could not have claimed any depreciation. Looking to the nature of the advantage which the assessee obtained in a commercial sense, the expenditure appears to be revenue expenditure." 12. Thereafter, the Apex Court referring to several cases decided held as under: "11. 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....
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.... should normally be considered as revenue expenditure. Moreover, assessee in the present case did not get any capital asset by spending the said amounts. The assessee therefore could not have claimed any depreciation. Looking to the nature of the advantage which the assessee obtained in a commercial sense, the expenditure appears to be revenue expenditure." 13. Thereafter, the Apex Court referring to several cases decided held as under: "11. 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 r....
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....n 53.00 Lakhs for construction of sheds to be used for storage of wheat etc., and claimed the same as Revenue expenditure. Whereas, the contention of the Revenue is that after insertion of Explanation-i to Section 32(1), any construction made on leasehold premises is to be treated as capital expenditure. Before proceeding further, let us first examine Explanation-i which reads as under: "Explanation 1.--Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work, in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee ". Explanation-1 to Section 32(1) was inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 01-04-1998 to deal with the situation where the assessee is carrying on business or profession in a building on le....
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....and unambiguous, recourse cannot be had to the principles of interpretation other than the Iftera! rule and even if the literal interpretation results in hardship or inconvenience, it has to be followed. The language employed in a statute is the determinative factor of the legislative event and even assuming there is a defect or any omission in the words used in the legislation, the court cannot correct or make up the deficiency, especially when a ilteral reading thereof produces an intelligible result and any departure from the literal rule would really be amending the law in the garb of interpretation, which is not permissible and which would be destructive of judicial discipline, vide Raghunath Rai Bareja v. Punjab National Bank [20071135 Comp Cas 163 (SC) ; [200712 SCC 230. What constitutes capital expenditure and what does not, to attract Explanation 1 to section 32(1) of the Act depends upon the construction of any structure or doing any work or in relation to and by way of renovation, extension or improvement to the building which is ut up in a buildTh.g taken on lease by him for carrying on his business and profession of the assessee, but not in a case of construction of ....
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.... expenditure. As such, we are not in a position to appreciate the facts of the case. Accordingly, we remit the issue to the file of AO to decide the issue afresh in the light of judgement of jurisdictional High Court and Supreme Court cited supra as discussed above. 8. In the result, the appeal of Revenue is partly allowed for statistical purposes. ITA No.103/Mds./16(A.Y: 2012-13) 9. The first ground in this appeal is with regard to deletion of addition made by AO on account of disallowance of deduction u/s.80-IA of the Act amounting to Rs. 2,76,25,507/-. Since we have already held in the assessment year 2011-12 at para Nos.3 &4 of this order that the assessee is entitled for deduction u/s.80-IA of the Act on the same reason we have upheld the order of the Ld.CIT(A) on this issue. This ground is rejected. 9.1 Regarding the last ground is with regard to direction of Ld.CIT(A) to deletion of addition made by AO on the ground that building construction on a leasehold land is revenue in nature, which is considered by us in the assessment year 2011-12 at Para Nos.6.4 to 6.9 of this order. Accordingly, this ground of assessee is remitted to the file of AO to decide the issue afresh ....