TaxTMI 
TaxTMI 
TaxTMI 
2016 (6) TMI 1388
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....of the assessee is that the ld. CIT(A) has erred in confirming the action of the Assessing Officer in treating the lumpsum consideration of Rs.. 65,00,000/- towards sale of Drum Plant (giving up right to manufacture) as business income as against capital gains admitted by the assessee. 3. Brief facts of the case are that during the previous year relevant to the assessment year under appeal, the assessee has received an amount of Rs..65,00,000/- from M/s. Balmer Lawrie & Co. Ltd. towards giving up of right to manufacture. The consideration for giving up the right to manufacture was received in pursuance to an agreement dated 27.11.2002 entered into between the assessee and M/s. Balmer Lawrie & Co. Ltd. [a Government of India Enterprises]. The assessee has claimed the above lumpsum consideration of Rs..65 lakhs as capital gain, whereas, the Assessing Officer has treated the same as business income by relying on the decision in the case of Mcdowell and Company Ltd. v. Commercial Tax Officer 154 ITR 148(SC). 4. On appeal, after considering the submissions of the assessee and also by considering relevant provisions of section, by confirming the order of the Assessing Officer, the ld....
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....er the head capital gain, yet the provisions of the Act neither expressly nor by implication convey that Section 55(2) overrides Section 28(va). The non usage of the words "non withstanding anything contained in any other provisions of the Act in Section 55, further makes it clear that a particular item could be taxed either under the head capital gain or under business income depending upon the facts and circumstances of the case. 7.6.3. No doubt, it is true as cited by the AR that the agreement consist of 3 parts (i) Transfer of Plant & Machinery for Rs. 30 lacs , which the buyer has to pay to the Appellant. (ii) Giving up the right to manufacture for Rs. 65 lacs, for which the buyer has to pay the Appellant for refraining from manufacture and (iii) Supply and procurement of material for 5 years - This is mutually depended and subject to penalty for non fulfillment of the respective obligation and further backed by bank guarantee on either side. However, in page 2 of the agreement between M/s. Chemplast Sanmar Ltd and Balmer Lawrie Ltd , dated 27th day of November 2002, the following has been provided: AND WHEREAS Balmer Lawrie has agreed to pay Chemplast a sum of ....
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....the amount of Rs. 65 lacs has to be spread over a period of 5 years starting from November 2002. The argument of the AR here also is untenable. The appellant company already received the entire consideration and there is no concept of deferred revenue income under the Income Tax Act. Moreover Section 28(va) clearly taxes any sum received or receivable under an agreement for not carrying out any activity in relation to business. The provisions of the act does not differentiates between lumpsum consideration or otherwise. 7.6.7. For the reason stated above the assessee's appeal fails. The treatment of Rs. 65 lacs being compensation for giving up the right to manufacture as business income by the A.a is upheld. No relief for the appellant." 5. On being aggrieved, the assessee is in appeal before the Tribunal. 6. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The Assessing Officer treated the lumpsum amount received by the assessee towards sale of Drum Plant (giving-up right to manufacture). While sustaining, the ld. CIT(A) has also rejected the alternative pleas raised before him during appellate proceedings. I....
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....dentical that during A.Y.1997-98 the said appellant had received Rs. 50 lacs from Ranbaxy Lab Ltd. as noncompetition fees in terms of an agreement dated 31/03/1997. The relevant portion is reproduced hereunder:- "The assessee, which was carrying on the business of manufacturing, selling and distribution of pharmaceutical and medical preparations, received during the assessment year 1997- 98 Rs. 50 lakhs from Ranbaxy as non-competition fee. It agreed to transfer its trade marks to Ranbaxy and in consideration for such transfer the assessee agreed that it shall not carry on directly or indirectly the business hitherto carried on by it. The agreement was for 20 years. The Tribunal held that the amount was a capital receipt; but the High Court reversed the decision. On appeal to the Supreme Court: Held, reversing the decision of the High Court, that prior to April 1, 2003, when Parliament stepped in to specifically tax such receipts, the payment was in the nature of a capital receipt." 4.1. Respectfully following the view taken by the Hon'ble Apex Court, we hereby affirm the findings of ld.CIT(A) and dismiss this ground of the Revenue." 7. On perusal of the Ahmedabad Bench d....
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....ransfer. In the instant case, the value fixed by the stamp valuation authority was Rs..553.68 lakhs, which has been reduced to Rs..396.72 lakhs on appeal by the Inspector General of Registration. Such being the case where the value adopted by the Stamp Valuation Authority is higher than the actual consideration stated to have been received by the assessee, the consideration for the purpose of computing long term capital gain shall be taken as Rs..3,96,72,377 as determined by the Stamp Valuation Authority. Therefore, the assessee was show caused as to why the above said value should not be taken as the full value of consideration. The assessee mainly submitted before the Assessing Officer that having approved the sale consideration by the Appropriate Authority constituted under the provisions of the Income Tax Act, it is not open for the Assessing Officer to substitute such value by some other notional value. In view of this the consideration for transfer of property of Rs..144 lakhs should not be disturbed. Any attempt to make substitution of actual consideration by notional value in such case would not only against the principle of natural justice but also bad in law. 8.3 After ....
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....of the above transaction and found that the registering authority has determined the value of the property at Rs..553.68 lakhs. As the value determined by the registered authority was felt very exorbitant, the purchaser filed representation before the Special Dy. Collector (Stamps), who has determined the value at Rs..501.36 (land 497.04 lakhs and building Rs..4.32 lakhs). Not accepting the value as determined, the purchaser approached the appellate forum viz., the Inspector General of Registration, who vide his order dated 02.01.2004, determined the value of the property at Rs..396,72,377/- (land Rs..392,40,000/-, building Rs..432,377/-). As even the order of the appellate authority was felt unrealistic, the purchaser approached the Hon'ble High Court of Madras, which granted an interim stay on the operation of the order of the Inspector General of Registration. The case of the assessee could not be referred to the valuation officer since the assessee has gone on appeal before the appellate authority. However, the deeming provision of section 50C of the Act cannot be overlooked. Therefore, the Assessing Officer has taken the value of Rs..3,96,76,377/- as determined by the Inspecto....
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....n applying the provisions of section 50C of the Act. Similar ratio was laid down by the Kolkata Benches of the Tribunal in the case of Neville De Noranha v. ACIT 115 TTJ 390. However, any final judgement against the stay on operation of the order of the Inspector General of Registration, which is pending before the Hon'ble Jurisdictional High Court, would be final. The ground raised by the assessee is allowed subject to the decision of the Hon'ble Madras High Court. I.T.A. No. 52/Mds/2009 A.Y. 2005-06 [Assessee's appeal] 9. With regard to the assessment year 2005-06, the only effective ground raised in the appeal of the assessee is with regard to confirmation of disallowance of provisions for gratuity. 9.1 The assessee has made a provision of Rs..7,50,23,640/- towards Gratuity Fund with Life Insurance Corporation of India, which was also approved by the Commissioner of Income Tax, Chennai. The assessee claimed the same as per the provisions of section 40A(7)(b) of the Act. However, the Assessing Officer negated the claim of the assessee on the ground that the assessee had only made the provision and not made actual payment, and therefore, the same cannot be allowed as per the....
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....n 43B of the Act. On appeal, the Commissioner of Income Tax (Appeals) allowed the claim of the assessee and deleted the disallowance observing that similar issue has been allowed in assessee's own case for the assessment years 2005-06 and 2006-07. 3. Departmental Representative vehemently supports the order of the Assessing Officer in disallowing the provision for gratuity submitting that since the said amount is only a provision and not paid is hit by the provisions of section 43B of the Act. 4. Counsel for the assessee relied on the order of the Commissioner of Income Tax (Appeals). He further submits that the Revenue in earlier years accepted the decision of the Commissioner of Income Tax (Appeals) in deleting the provision for gratuity for the assessment years 2005-06 and 2006-07 and no further appeal was filed by the Revenue on similar issue. Counsel relied on the following decisions in support of his contentions that provision made for approved gratuity fund is allowable as deduction under section 40A(7)(b) of the Act and such provision for gratuity is not hit by the provisions of section 43B of the Act:- i) CIT Vs. Bechtel India (P) Ltd. (2 DTR (Del) 145) ii) CIT....
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....h a non obstante clause. Section 40A(7) provides that in cases covered by the provisions of clause (a) no deduction shall be allowed in respect of any provision whether called as such or by any other name made by the assessee for the payment of gratuity of his employees on their retirement or on termination of their employment for any reason. However, clause (b) of section 40A(7) clearly provides that to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year clause (a) will not apply. This means exception has been carved out in respect of payment of sums by way of any contribution towards an approved gratuity fund. Thus the Legislature wanted to give a special treatment to provision made by an assessee for the purpose of payment by way of any contribution towards an approved gratuity fund. This has to be treated as a special provision. The marginal note to section 43B clearly says "certain deductions to be only on actual payment". It deals with various items. Section 43B(b) deals generally with any sum payable ....
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.... the assessee for deduction on this score was clearly justified. We are accordingly of the opinion that no substantial question of law arises in this regard as well." 8. Respectfully following the said decisions, we uphold the order of the Commissioner of Income Tax (Appeals) in deleting the disallowance made for approved gratuity funds. 9. In the result, appeal of the Revenue is dismissed." 9.5 After considering the ratio laid down by the Hon'ble Kerala High Court and the Hon'ble Delhi High Court, the Coordinate Bench of the Tribunal in the case of ACIT v. Tyco Sanmar Ltd. (supra) decided the issue in favour of the assessee is also applies to the fact of the present case. However, for more clarity, the gratuity to be deductible, the conditions laid down in section 40A(7) had to be fulfilled. The deduction could not be allowed on general principles under any other section of the Act, because sub-section (1) of section 40A made it clear that the provisions of the section had effect notwithstanding anything to the contrary contained in any other provisions of the Act relating to the computation of income under the head "Profits and gains of business or profession". In other w....
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....ld. Counsel for the assessee, by relying on the decisions in the case of ACIT v. Torrent Pharmaceuticals Ltd. 137 ITD 301 (Ahd) and Escort Ltd. v. ACIT 104 ITD 427 (Del), submitted that the issue is squarely covered by the above decision and expenditure incurred on ERP should be of revenue in nature. 11.4 After perusing the above orders, we find that by following the decision of the Delhi Benches of ITAT in the case Escort Ltd. v. ACIT (supra), the Ahmedabad Bench of the Tribunal in the case of ACIT v. Torrent Pharmaceuticals Ltd. (supra), has observed and held as under: "10. First ground is with regard to confirming the disallowance of Rs. 63 lakh which was claimed by assessee on revenue account. The contention of assessee before Ld. CIT(A) was that the assesseecompany had entered into an agreement with IBM. In pursuance of this agreement, IBM would undertake to study the existing business system and come with solutions as required by an Enterprise Resource Planning (ERP for short) provided by SAP. It would also train people so that data migration from legacy system to SAP would smooth and train people in the running of the ERP system. Total payments made to IBM amounting to ....
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.... an assessee, the duration of time for which the assessee right to use the software becomes relevant. Accordingly we are of the view that in case the software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where the life of the computer software is shorter or say less than 2 years, it may be treated as revenue expenditure. Hence, we find that the CIT(A) has recorded a categorical finding that the software programme without which the computer cannot work and with the advancement of technology, the programme changes during short period and this change is requirement of the business of the assessee i.e. share broking. Accordingly, we delete the addition confirmed by CIT(A) and this issue of assessee's appeal is allowed.". Further the Hon'ble Bombay High Court in Tax Appeal No.4176 of 2009 in the case of M/s. Raychem RPG Ltd. (supra), has affirmed the view of ITAT Special Bench which has held that the expenditure incurred on ERP is of revenue in nature. Respectfully following the aforementioned decision, we allow this ground of assessee's appeal. 11.5. Though the two Coordinate Benches of the Tribunal have observed t....
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....99, 1999-2000 & 2001-02, the ld. CIT(A) in his order in ITA Nos. 152 to 154/2004-05 decided the issue in favour of the assessee. Accordingly, by following his own order for the earlier assessment years, for the year under appeal also, the ld. CIT(A) decided the issue in favour of the assessee and the addition of Rs..1,14,115/- made by the Assessing Officer was deleted. 12.3 Aggrieved, the Revenue is in appeal before the Tribunal. Against the above deletion of addition under section 40A(9) of the Act, the Revenue has filed appeals for the assessment years 2004-05, 2005-06, 2006-07 and 2007-08. 12.4 We have heard rival contentions and perused the materials available on record. Against the claim of the assessee towards contribution to benevolent fund, the Assessing Officer has made addition under section 40A(9) of the Act in the assessment year 1998-99. By following the decision of Coordinate Bench of the Tribunal in the case of India Pistons Repco v. IAC 26 ITD 413), the ld. CIT(A) directed the Assessing Officer to allow contribution made by the assessee to benevolent fund by observing as under: "5. I have carefully considered the facts of the case, case laws and the submissio....
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....or the assessment year 2003-04 and for the assessment years 2004-05, 2005-06, 2006-07 and 2007-08 also the ld. CIT(A) deleted the addition made by the Assessing Officer. The only contention of the Department is that the earlier order of the ld. CIT(A) in assessee's own case in ITA Nos. 152 to 154/2004-05 has not become final cannot be accepted since the Department has not filed any order of higher forum having modified or reversed the above decision of the Coordinate Bench of the Tribunal. Under the above facts and circumstances, we sustain the order of the ld. CIT(A) on this issue for all the above assessment years under appeal and dismiss the ground raised by the Revenue. 13. The next common ground raised in the appeal of the Revenue for the assessment years 2003-04, 2004-05, 2006-07 and 2007-08 is that the ld. CIT(A) has erred in holding that the assessee is entitled for deduction under section 80IA of the Act on captive power consumption. 13. 1 The assessee has set up a 18 MW (6 MW x 3) combined power plant at Plant III, Raman Nagar, Mettur Dam, Salem District of Tamil Nadu during the financial year 1996-97. The assessee, vide its revised return dated 09.02.2005 claimed ded....
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....on 80IA of the Act and allowed the ground raised by the assessee. 13.3 On being aggrieved, the Revenue is in appeal before the Tribunal. On similar facts of the case, the Revenue also filed appeal for the assessment year 2007-08. The ld. DR mainly relied on the decision of the Tribunal in the case of Chettinad Corporation Ltd. in I.T.A. No. 1029/Mds/2005 dated 05.01.2007, which the ld. CIT(A) ought to have followed. 13.4. We have heard both sides, perused the materials on record and gone through the orders of authorities below. It is an admitted fact that 96% of the power generated by the assessee has been captively consumed in the assessee's factory itself. Therefore, the Assessing Officer has held that the assessee is not eligible to claim deduction under section 80IA of the Act. By following the decision of the Tribunal in the case of ACIT v. TANFAC Industries (supra), the ld. CIT(A) held that the assessee is eligible to claim deduction under section 80IA of the Act. Against the order of the Tribunal, the Department carried the matter in appeal before the Hon'ble Jurisdictional High Court and the Hon'ble High Court in T.C. No. 1773 of 2008 dismissed the appeal filed by the D....
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....eeling the electricity through TNEB Grid. Out of the total power generated 39% was sold by assessee to the said M/s OPG Metals P. Ltd. A.O. put the assessee on notice that income attributable to sale of power to M/s OPG Metals P. Ltd. would not be eligible for deduction under sec. 80IA of the Act. Assessee replied that there was no difference between drawing power from captive generation or through the grid and both had to be considered in the same status. A.O. was not impressed. He held that captive consumption of electricity would not be eligible for deduction under sec.80IA of the Act. Resultant disallowance of deduction came to Rs..9,36,80,721/-. 13. In its appeal before the CIT(A), argument of the assessee was that an unreasonable distinction was made between captive unit and non-captive unit and just because power was not wheeled through TNEB, A.O. ought not have disallowed deduction under sec. 80IA of the Act. Relying on sub-sec.(8) of sec.80IA of the Act, assessee argued that captive consumption was recognized by the Statute for the purpose of working out deduction under sec.80IA of the Act. CIT(A) was appreciative of this contention and held that assessee had satisfied ....
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.... such an undertaking or an enterprise set up, any profit or gain is derived, falling under sub-sec. covered by subsec.(4) of Sec.80IA of the Act such profit or gain derived by the assessee can be deducted in its entirety for a period of 10 years starting from the date of functioning of the set up. The contention that profit or gains can be claimed by the assessee only if such profit or gain is derived by the sale of its product or power generated to an outsider cannot be the manner in which the provisions contained in Sec.80IA(1) can be interpreted. The expression 'derived'; used in the said Sec.80IA(1) in the beginning as well as in the last part of the sub-sec. (4) makes it abundantly clear that such profit or gain could be obtained by one's own consumption of the outcome of any such undertaking or business enterprises as referred to in sub-sec.(4) of Sec.80IA. The dictionary meaning of the expression 'derive' in the New Oxford Dictionary of English states 'obtaining something from a specified source'. In Sec.80IA(1) also no restriction has been imposed as regards the deriving of profit or gain in order to state that such profit or gain derived only through an outside source a....
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....n (Rs..53,63,627) and claimed the same as revenue expenses. The Assessing Officer, however, treated the same as prepaid expenses and allowed only Rs..14,84,764/- as an allowable expense. 14.2 During the course of hearing before the ld. CIT(A), the assessee has submitted the details of upfront fees/guarantee commission and claimed that the upfront fees were all revenue expenses. In view of the decision in the case of CIT v. Meenakshi Mills Ltd. 290 ITR 107 (Mad) and in the case of DCIT v. Gujarat Alkalies and Chemicals Ltd. SC 167 taxman 203/215 CTR 10, the ld. CIT(A) has held that the upfront fees of Rs..47,50,000/- paid by the assessee is of revenue in nature and allowed the same. With regard to guarantee commission by following the decisions in the case of CIT v. Madras Cements Ltd. 254 ITR 423 (Mad) and CIT v. Sivakami Mills Ltd. 227 ITR 465 (SC), wherein the Hon'ble Supreme Court has held that guarantee commission paid was allowable as business expenditure, the ld. CIT(A) allowed the claim of the assessee for all the assessment years under appeal. 14.3 Aggrieved, the Revenue is in appeal before the Tribunal. 14.4 After hearing both sides, we find that in the case of CIT v....
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....ch has held that the provision for gratuity, made on actuarial valuation was an ascertained liability and the same could not be added back to the book profits. In the other case cited by the Appellant the Hon'ble ITAT Mumbai in the case of Greaves Chitram Ud Vs DCIT - (9 SOT 143) has also held that the gratuity liability, which was based on actuarial valuation, was deductible from the book profits as ascertained liability. As the fads and circumstances of the appellant are exactly similar to the case discussed above and as it has not been denied by the AO that provision for gratuity has been made on actuarial basis, respectfully following the decision of the ITAT, Indore (supra) and the ITAT, Mumbai (supra), I hold that the Provision for Gratuity of Rs. 61,71,603/* should not be added back to book profits. The appellant succeeds on this ground." 15.3 The ld. DR could not controvert the above findings of the ld. CIT(A), wherein the ld. CIT(A), by following the decisions of the Indore and Mumbai Benches of the Tribunal, held that the provision for gratuity of Rs..61,71,603/- should be added back to the book profits and allowed the ground raised by the assessee. Thus, we find no....
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....h of the expenditure as deduction for every year by observing as under: "4.2 I have considered various submissions made by the appellant during the appeal proceedings. In similar circumstances, there is a decision of Hon'ble Chennai ITAT in the case of Orchid Chemicals & Pharmaceuticals Vs ACIT 137 TTJ 373 and also one more decision of Hon'ble ITAT Chennai in the case of ITO Vs Seafil Leasing 124 TTJ 531 ITAT, Chennai. I am of the considered opinion that these decisions have similarities to the facts and circumstances of the present case and hence this expenditure may be allowed as deferred revenue expenditure for a period of 10 years. This decision of mine is in commensurate with the method adopted by the appellant himself for the purposes of maintenance of books of accounts by the appellant. In other words, the Assessing Officer is directed to treat the non-compete fees paid as deferred revenue expenditure and allow 1/l0th of the expenditure as deduction for every year. Since this issue is there for both the assessment years, this decision is applicable for both the assessment years in question." 16.6 Over and above, the Hon'ble Jurisdictional High Court in the case ....
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.... or any product similar thereto; he shall not act as a Consultant or use any knowhow, design or drawings directly or indirectly and refrain from disclosing or divulging any information relating to the knowhow, trade practices, etc. The agreement was to be effective for a period of five years from the date of the agreement. 7. On 29.04.1996, yet another agreement was entered into between the assessee and the said U.Mohanrao, former Chairman and Managing Director of Cutfast Abrasive Tools Limited, as by way of a non-compete agreement that the said U.Mohanrao shall not, in any manner, assist any third party, or sell or render advise or act as a Consultant in respect of the products, namely, coated and bonded abrasives, current range of products of the Electrominerals Division of CATL and cloth processing for coated abrasives. In consideration of the said agreement, the said U.Mohanrao was paid a sum of Rs. 1,75,00,000/- towards non-compete fee. On 14.10.1996, there was a supplementary agreement between the assessee and the said U.Mohanrao, which contemplated inclusion of other products, namely, coated and bonded abrasives, current range of products of the Electrominerals Division o....
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....) and pointed out to the guiding factor in the matter of considering the claim as to whether the expenditure would fall under the capital or revenue head. Making particular emphasis on the fact that the expenditure incurred was more in the field of indefinite income earning operation and not in the context of strengthening the income earning structure, he submitted that the Tribunal and the Authorities below committed a serious error in looking at the enduring benefit concept for the purpose of rejecting the assessee's case. 10. Referring to the decision reported in [1980] 124 ITR 1 (Empire Jute Co. Ltd. Vs. Commissioner of Income Tax (S.C.)), he submitted that the expenditure incurred was for the exploitation of a commercial asset; hence was revenue in character. Even where an expenditure is incurred by obtaining an advantage of enduring benefit, it may, nonetheless, be on revenue account and the test of enduring benefit may break down. He further submitted that what is material herein is to consider the nature of advantage in a commercial sense. If the advantage is in the field of facilitating the assessee's business operation more effectively or more profitably leavin....
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....s to whether it is a revenue expenditure or a capital expenditure, the Apex Court pointed out 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. Thus whether an expenditure is capital or revenue has to be determined with regard to the nature of the transaction and other relevant factors. Referring to the decision reported in [1965] 58 ITR 241 (PC) (Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd.), the Apex Court pointed out that "there may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. ... 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 enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capit....
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....nditure and the commercial necessities of making such an expenditure. The question has to be considered in the background of the facts of each case, that "the idea of "once for all" payment and "enduring benefit" are not to be treated as something akin to statutory conditions; nor are the notions of "capital" or "revenue" a judicial fetish. " - [1989] 177 ITR 377 (Alembic Chemical Works Co. Ltd.). 18. Going by the above-said principle, if one looks at the decision reported in [1991] 191 ITR 249 (Chelpark Company Ltd. Vs. Commissioner of Income Tax), one may find that the decision that the expenditure was a capital expenditure and hence not deductible, rested in the context of the peculiar facts of the case; the partnership with which the assessee had the non-compete agreement got dissolved immediately after the payment of the non-compete fee and the potential competitor had vanished. On these facts, this Court observed that, whatever the assessee had paid for was of permanent or enduring quality, in the sense that competition had been totally eliminated and protection had been acquired for the business of the assessee as a whole. We do not find that the Revenue could draw any su....
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....ssed by the ld. CIT(A) for both assessment years 2006-07 and 2007-08 and thus, the ground raised by the Revenue is dismissed. 17. The next ground raised in the appeal of the assessee for the assessment year 2005-06 is that the ld. CIT(A) has erred in deleting the repairs in the form of renovation to building. 17.1 The assessee has incurred a sum of Rs..60,35,328/- towards repairs in the form of renovation to building and claimed the same as revenue expenses. It was the submission of the assessee that the assessee company has not derived any benefit of enduring nature from these expenses and therefore claimed the expenses as revenue expenses. By considering the submissions of the assessee and also by considering various decisions, the Assessing Officer negated the claim of the assessee and allowed depreciation @ 10% on this expenses. 17.2 On appeal, by relying on various judicial pronouncements, the AR of the assessee strongly contended that the expenses incurred by the assessee on account of renovation of existing building should be treated as revenue expenses. By following the decision in the case of Flowserve Sanmar Ltd. (group company of the assessee), the ld. CIT(A) allow....
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....f the ring frame constituted substitution of an old asset by a new asset and therefore, the expenditure incurred by the assessee did not fall within the meaning of "current repairs" in section 31(i) of the Act. However, in the instant case, the assessee has not acquired or created any new asset to enhance the income of the assessee. Therefore, the case law relied on by the ld. DR has no application to the facts of the case. 17.6 In the case of CIT v. Ooty Dasaprakash (supra), the Hon'ble Madras High Court has held that the expenditure was incurred solely for repairs and modernizing the hotel and replacing the existing components of the building, furniture and fittings with a view to create a conducive and beautiful atmosphere for the purpose of running the business of a hotel and the expenditure incurred was not of an enduring nature and was allowable as revenue expenditure under section 37 of the Act. 17.7 Under the above facts and circumstances and in view of the ratio laid down by the Hon'ble Jurisdictional High Court in the case of CIT v. Ooty Dasaprakash (supra), we remit the issue back to the file of the Assessing Officer to segregate the total expenditure as capital and ....
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....essee, wherein the Hon'ble Supreme Court has observed as under: "The appellant firm, which carried on the business of manufacturing from limestone, was granted, under a lease dated March 4, 1949, from the Government of Jodhpur, the right to excavate limestone in certain areas. The lease expired on July 14, 1952, but it was extended by the Government for a short periods. Pursuant to a policy adopted by the Government, the Rajpramukh of Rajasthan sanctioned 15 sq. miles of lime deposits to the appellant on October 4, 1954, on the terms and conditions prescribed under the Jodhpur Division Vindhyan Limestone Mining Leases Rules, 1954. For the period July, 1952 to the date the new lease was to be given effect to, a fixed royalty of Rs. 96,000 per annum had to be paid on the basis of dead rent. Under the Jodhpur Division Vindhyan Limestone Mining Leases Rules, 1954, a mining lease could be granted only to a holder of a certificate of approval from the Mining Department and the lease was to be for a period of five years with an option for renewal for another period of five years. Dead rent was to be charged at Rs. 10 per acre while royalty was to be charged at 1 a. 6 ps. per maund of l....
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....ecause even a single significant detail may alter entire aspect. In deciding such cases one should avoid the temptation to decide by matching the colour of one case against the colour of another. ABDUL KAYOOM V. COMMISSIONER OF INCOME-TAX [1962] 44 LT.R. 689 (S.C.) followed. It is not the law in every case, that if an enduring advantage is obtained the expenditure for securing it must be treated as capital expenditure, for the ordinary case, the cost of the material worked up in a manufactory is not a capital expenditure, it is a current expenditure, and does not become a capital expenditure merely because the material is provided by something like a forward contract, under which a person for the payment of a lump sum down secures a supply of the raw material for a period extending over several years," ALIANZA Co. v. BELL [1904] 2 K.B. 666 at 673 approved. Decision of the Rajasthan High-Court in COMMISSIONER OF INCOME-TAX* V. GOTAN LIME SYNDICATE [1964] 51 I.T.R. 533 reversed." 18.5 In view of the above decision of the Hon'ble Supreme Court, which was followed by the ld. CIT(A), we confirm the order passed by the ld. CIT(A) on this issue. Thus, the ground raised by th....