TaxTMI 
TaxTMI 
2017 (12) TMI 1698
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....e the land for mining is not covered by the definition of intangible asset u/s 2(11) of the Act entitling depreciation allowance u/s 32(1)(ii) of the Act? (iii) Whether on the facts and circumstances of the case and in law the expenditure incurred on computerization of Mines Department of the Government of Rajasthan of Rs. 50 lacs does not qualify to be an expenditure expended "wholly and exclusively for the purpose of business" allowable u/s 37 of the Act?" 3. Subsequently vide order dt. 31.10.2017 one additional substantial question of law was added which reads as under:- (iv) Whether under the facts and circumstances of the case the learned Income Tax Appellate Tribunal has not legally erred in not allowing the benefit of deduction u/s 80IA on Rs. 3,44,23,812/- received on account of minimum guarantee covenant under the agreement by holding the same to be not "derived" from the business of power generation undertaking?" 4. The facts of the case are that the case of the assessee was selected for scrutiny assessment u/s 143(3) under CASS. Notice u/s 143(2) dt. 27.8.2011 sent through registered post and served upon the assessee. In response to notice, the A/....
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....ssessee was entitled to deduct the entire amount of Rs. 3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years., Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirely in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. v. Commissioner of Income-Tax, Calcutta-I : [1983]144ITR474(Cal) the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical as....
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....allowed in computing the income chargeable under the head "Profits and gains of business or profession". 6. He has relied upon the following decisions:- 6.1 In S.A. Builders Ltd. vs. Commissioner of Income Tax (Appeals), Chandigarh and Anr. [2007] 288 ITR 1 (SC) it has been held as under :- "22. In our opinion, the decisions relating to Section 37 of the Act will also be applicable to Section 36(1)(iii) because in Section 37 also the expression used is "for the purpose of business". It has been consistently held in decisions relating to Section 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. 25. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. 34. We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (Bhart) L....
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....down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or in enabling the management in the conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. The test of acquisition of capital asset was referable to acquisition of such asset to the trade and not de hors its ownership vesting in the trade of the assessee or in the assessee. In the present case, there is no dispute on the point that the assessee did not ac....
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....money was spent for the preservation of the respondent's business." By laying out the expenditure for bringing into existence a building to be owned by the State and to be run by the State for the benefit of the industry for the purpose of training its workmen was clearly related to the running of the business of the assessee more efficiently and smoothly by securing the assessee's workmen trained, skilled and efficient. 25. We have no hesitation in coming to the conclusion that, in the facts and circumstances which exist in the case, the expenses incurred by the assessee towards construction of the building for Manak Manikya Lal Verma Textile Institute, Bhilwara were expenses wholly and exclusively incurred for the purpose of business of the assessee and was not In the nature of capital expenditure, therefore, the same is allowable as revenue expenses under Section 37(1) of the IT Act, 1961. The Tribunal was justified in reaching this conclusion. No interference can be made on this count. 6.3 In Commissioner of Income Tax vs. Hindustan Zinc Ltd. [2010] 322 ITR 478 (RAJHC) it has been held as under :- 11. In Rajasthan Spg. & Wvg. Mills Ltd.'....
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....on so as to ensure sharing of the water with the State Government without having any right or ownership in the dam or the water. Even, the assessee's share of water is also determined by the State Government. Thus, the expenditure incurred by the assessee for commercial expediency relates with carrying on of business and falls within such matter expenditure as prudent businessman may incur for the purpose of the business. The operational expenses incurred by the assessee solely intended for furtherance of the enterprise can be no means be treated as expenditure of capital nature. 13. Keeping in view the object and purpose of the expenditure and totality of the facts and circumstances of the case noticed above, in our considered opinion, the benefit received by the assessee company on account of the expenditure incurred cannot be said to be an advantage in the capital field. We are in agreement with the view taken by the CIT(A) and affirmed by the learned Tribunal that the object and effect of the expenditure made by the assessee is to facilitate its trade operation and enable the management to conduct business more efficiently or more profitably. Therefore, the questio....
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....ry for the assessee to make or not. The correct test is that of a commercial expediency. The Apex Court held that considering the various decisions held that any contribution made by the assessee to a fund which is directly connected or related the carrying on of the assessee's business or which results in benefit to the assessee's business, has to be regarded as a deduction allowable under Section 37 of the Income Tax Act, 1961. Although the case related to a contribution to a public welfare fund, the ratio decidendi will guide the decision in this case too. 9. In may be noted that the decision reported in : [2004]266ITR170(Mad) (CIT v. Madras Refineries Ltd.), while considering a claim of the expenditure incurred by an assessee providing drinking water facility as well as establishing or improving the school meant for the residents in the locality, a Division Bench of this Court, held that the amount spent could not be regarded as being wholly outside the ambit of the business concerns of the assessee. The Division Bench held as follows: The concept of business was not static. It has evolved over a period of time to include within its fold the concrete e....
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....gistered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i)developing or (ii)operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: 6.6 In support of his contentions, he relied on the decision of the Supreme Court in Commissioner of Income Tax vs. Meghalaya Steels Ltd. [2016] 383 ITR 217 (SC) it has been held as under : 18. The judgment in Sterling Foods lays down a very important test in order to determine whether profits and gains are derived from business or an industrial undertaking. This Court has stated that there should be a direct nexus between such profits and gains and the industrial undertaking or business. Such nexus cannot be only incidental. It therefore found, on the facts before it, that by reason of an export....
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.... The object of the Transport Subsidy Scheme is not augmentation of revenue, by levy and collection of tax or duty. The object of the Scheme is to improve trade and commerce between the remote parts of the country with other parts, so as to bring about economic development of remote backward regions. This was sought to be achieved by the Scheme, by making it feasible and attractive to industrial entrepreneurs to start and run industries in remote parts, by giving them a level playing field so that they could compete with their counterparts in central (non-remote) areas. The huge transportation cost for getting the raw materials to the industrial unit and finished goods to the existing market outside the state, was making it unviable for industries in remote parts of the country to compete with industries in central areas. Therefore, industrial units in remote areas were extended the benefit of subsidized transportation. For industrial units in Assam and other northeastern States, the benefit was given in the form of a subsidy in respect of a percentage of the cost of transportation between a point in central area (Siliguri in West Bengal) and the actual location of the industrial....
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....Co. Ltd. : (2006) 205 CTR (Mad) 493 : (2006) 286 ITR 201 (Mad). 16. There is no reason to depart from the aforesaid view taken consistently by various High Courts, which is in tune with the principle laid down by the Supreme Court in Liberty India (supra). We answer this question in favour of the assessee and against the Revenue. 6.8 In Commissioner of Income Tax vs. Moonlight Builders and Developers reported in (2008) 307 ITR 197 (Delhi), similar view was taken. 6.9 He also relied on two decisions of Tribunal where no appeal was preferred. Therefore, they cannot discriminate between two different assessee. 10. Counsel for the respondent contended that on first issue regarding Section 37, the expenses which are made are of capital nature, therefore, it cannot be taken as revenue expenditure. In that view of the matter, the first issue may not be considered. However, regarding second issue, he contended that assessee is not entitled for depreciation since he has not made any capital investment and this is raw material. 10.1 Regarding issue no.3, he contended that there is concurrent finding of authorities and the issue is required to be answered in favour of the....
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...., North East Gases (P) Ltd. v. CIT Orissa Tyres Ltd. v. CIT : [1991]188ITR342(Orissa) ,CIT v. Bihar Alloy Steels Ltd. : [1994]206ITR350(Patna), Godavari Sugar Mills Ltd. v. CIT : [1991]191ITR359(Bom) and CIT v. Cochin Refineries Ltd. : [1985]154ITR345(Ker) ]. 10.3 He also relied upon the decision of Supreme Court in CIT vs. Alpine Solvex Ltd. reported in (2003) 259 ITR 719 wherein it has been held as under:- In our opinion, a substantial question of law did arise in this case, which is as follows: "Whether on the facts and in the circumstances of the case and in law the ITAT was justified in holding that the liquidated damages received by the assessee on account of breach of contract are nothing but a part of profit received from the industrial undertaking on which the assessee is entitled for deduction under sections 80HH and 80IA?" The High Court, in our opinion, was wrong in dismissing the appeal in limine. We, therefore, allow this appeal set aside the High Court's order and direct the High Court to hear the appeal on merits." 11. We have heard counsel for the parties. 12. On the first issue, we are in complete agreement with the view tak....