TaxTMI 
TaxTMI 
2023 (2) TMI 461
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....e case and in law the Ld.CIT is justified in holding that incentive given by the Govt to the assessee for exploring new market is a capital receipt, whereas the object of the incentive was to enable the assessee to carry on the business more profitably and hence it is revenue receipt? ii) Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) ii justified in holding that the incentive given by the Govt to the assessee for exploring new market for exports is a capital receipt and hence cannot be treated as income u/s.28 of the Act, whereas sec.28(iiib) states that "cash assistance (by whatever name called) received or receivable by any person against exports under any scheme under the Government of India shall be chargeable to income tax under the head 'Profits and Gains of Business or Profession " ? iii) Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is justified in holding that the amount of Rs.1,54,10,800/- spent on construction of building is revenue in nature whereas the lease agreement recognizes both land and building and hence it clearly falls within the ambit of sec.32(1) and is capital expenditure? ....
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....FPS being the incentive given by the government for exploring the new markets, would be capital in nature. This decision by Tribunal in assessee's own case, inter-alia, followed the ratio laid down by Hon'ble Supreme Court in M/s Ponni Sugars & Chemicals Ltd. (306 ITR 392). 4.3 However, Ld. AO opined that the receipts were nothing but an incentive to promote export trade and therefore, the same would be similar to DEPB, Duty drawback etc. and therefore, revenue in nature. Finally, these receipts were brought to tax as revenue receipts. 4.4 The Ld. CIT(A) allowed the claim of the assessee by relying upon the order of Tribunal for AYs 2011-12 & 2012-13, ITA Nos.47 & 48/Mds/2016 dated 17.05.2016 wherein it was held that such receipts would be capital receipts and could not be treated as income either u/s 2(24) or Sec.28 of the Act. Aggrieved, the revenue is in further appeal before us. Our findings & Adjudication 5. From the adjudication of Ld. CIT(A), the undisputed position that emerges is that this issue stood covered in assessee's favor by the decision of this Tribunal in assessee's own case for AYs 2011-12 & 2012-13, ITA Nos.47 & 48/Mds/2016 order dated 17.05.2016. Th....
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....le the assessee to set up a new unit or expand the existing unit, then the receipt would be on capital account. In the case of the assessee, it was found that the scheme provided for an incentive for exploring the new markets across the globe. Exploring a new market for a specified area would naturally expand the market area of the assessee. The incentive given to the assessee was not for running the business profitably but for expanding the market area. Therefore, the receipts were held to be capital receipt which could not be treated as income either u/s 2(24) or 28 of the Act. Following this decision, similar view has been taken by another bench of this Tribunal in assessee's own case for AY 2013-14, ITA No.300 & 291/Mds/2017 dated 09.11.2017 as well as in AY 2016-17, ITA Nos.1676 & 1677/Chny/2019 common order dated 12.09.2019. The copies of these orders are on record. Therefore, the undisputed position is that this issue stand covered in assessee's favor by the earlier decisions of this Tribunal and facts are pari-materia the same in this year. There is nothing on record which would show that the aforesaid decisions have been reversed, in any manner, by higher judicial authorit....
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....tled to duty credit scrips equivalent to 2% of FOB value of exports which could be utilized to save customs duty on imports. The entitlement could also be sold in the market. The assessee has sold these scrips during the year and claimed the receipts to be capital receipts. It could be seen that the scheme does not provide for any matching expenses to be incurred by the assessee. Further, the objective of the scheme was to incentivize exploring new markets across the globe which would ultimately lead to expansion in market area for the assessee. It could thus be concluded that the incentive was given not to run the business profitably but to enable the assessee to expand the market area as held by the Tribunal in earlier orders. 8. The Hon'ble Supreme Court in the case of M/s Ponni Sugars & Chemicals Ltd. (306 ITR 392) held as under: - "The character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue acco....
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....ature. However, in assessee's case, the incentive has been received under Focus Product Scheme (FPS) the objective of which is to weed out infrastructure inefficiencies which is in capital field. Therefore, this case law is distinguishable on facts. 11. Another fact that could be noted is that the decision of Hon'ble Rajasthan High Court in PCIT vs. Nitin Spinners Ltd (116 Taxmann.com 26) deal with a case of Focus Market Scheme and the Hon'ble Court held that the subsidy was given to enhance Indian Export potential in the international market and it was not granted to meet the cost of expenditure to meet the competition of the Indian textile market. Therefore, the decision of Tribunal which held that the receipts were capital receipts was upheld. Therefore, even in the case of Focus Market Scheme, the Hon'ble Court has affirmed the view of the Tribunal that the receipts were capital receipts. This decision has reached finality since the Special leave Petition (SLP) filed by the revenue against the same has already been dismissed by Hon'ble Supreme Court which is reported as 283 Taxman 2. Therefore, the ratio of this decision is also binding on us and the same clearly support....
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....taken on lease and not in situations wherein the building is constructed on leasehold land. The final adjudication of Ld. CIT(A) was as under: - 7.7 Therefore, in the instant case, the appellant has taken only the land on lease and not the building. Though the appellant has spent on construction of the super structure on the vacant land taken on lease, the appellant does not own the super structure since on termination of the lease agreement the appellant has to handover the land to the lessor either with or without the super structure. The appellant has spent the money on the super structure only to obtain a business advantage. The construction of the building on the leased land is not for expansion of capital base or for any enduring addition to the capital assets and does not partake the character of capital expenditure. Alternatively, there has been saving of revenue expenditure on an ongoing basis and the necessity for construction of the new building has arisen out of the retaining the business turnover with foreign buyers. Hence, I hold that the expenditure claimed of Rs.2,91,94,968/- is allowable as revenue expenditure. Aggrieved as aforesaid, the revenue is in ....
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.... his business and profession of the assessee, but not in a case of construction of any structure or doing any work or relation to where such building is put up / constructed for the purpose of business or the profession of the assessee in a land taken on lease by the assessee since the assessee did not acquire a capital asset, viz., the land in the instant case but merely put up a construction of the building only for the business advantage, with the result the entire construction cost is admissible as the revenue expenditure. The Ld. AR submitted that the assessee put up the construction to gain business advantage i.e., to attract foreign customers and therefore, the same would-be revenue in nature. Our findings and Adjudication 15. At the outset, we find that this issue has been decided by Tribunal in ITA No.1677/Chny/2019 for AY 2016-17 as under: - 5. We have considered the rival submissions on either side and perused the relevant material available on record. In the earlier round of litigation, this Tribunal in I.T.A. No.291/Mds/2017, examined this issue and remitted back the matter to the file of the Assessing Officer with a direction to re-examine the matter in....
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....uishing between capital expenditure and revenue expenditure. One of the standard tests now in use was laid down in the case of Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155. It said (page 40 of 27 ITR) : "When an expenditure is made, not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital." Whether by spending the money any advantage of an enduring nature has been obtained or not will depend upon the facts of each case. Moreover, as the above passage itself provides, this test would not apply if there are special circumstances pointing to the contrary. This court in the above case summarised the tests as follows (page 44) : "1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. 2. Expenditure may be treated as properly attributable to capital when it is made not o....
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....es of interpretation other than the literal 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 literal 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 [2007] 135 Comp Cas 163 (SC) ; [2007] 2 SCC 230. 8. What constitutes a 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 put up in a building taken on lease by him for carrying on his business and profession of the assessee, but not in a case of construction of any structure or doing any work or relati....