TMI Blog2014 (10) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... t was taken on lease by them from the sister concern of the assessee - Then the assessee granted the licence to manufacture the assessee’s products - It is properly attributable to capital and capital expenditure - It is not a case where the advantage consists merely in facilitating the assessee’s trading operations or enabling the management and conduct the assessee’s business to be carried on more efficiently or more profitably - It is not the expenditure which is incurred to improve the business of the concern or spend for its expansion of its business or for substantial replacement of its equipment - This amount is paid to regain the profit making unit which had gone out of the hand of the assessee and the expenditure incurred in regaining this profit company unit is in the nature of a capital expenditure and not the revenue expenditure - the Appellate Authorities were not justified in recording a finding to the contrary solely based on the judgments referred by them when those judgments expressly stated in every case which should matter and only in that context the law has to be applied – Decided in favour of revenue. - ITA No.329/2007 - - - Dated:- 16-6-2014 - N Kumar B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision rendered in assesse s case in the earlier years in his favour. The said disallowance was also set aside. Aggrieved by this order, the revenue preferred an appeal to the Tribunal. On the issue of unclaimed credit balances, affirming the reasoning by the Appellate Authority they declined to interfere with the findings recorded by the Appellate Authority. Insofar as payment of Rs..5.31 crores as compensation, it was held, after referring to various judgments on which reliance was placed, the transaction is at arm s length and is settled with the help of the judicial process. The compensation awarded is also keeping in view of the ability of the other party to compete and diminish the profit earned by the assessee and therefore it was of the view, the nature of payment is clearly revenue and not capital expenditure and therefore, it declined to interfere on that question also. Insofar as disallowance of depreciation of unused aircraft is concerned, relief was granted to the assessee relying on the judgments of the earlier years. The same was the subject matter of appeal before this court. The orders passed by the authorities were set aside and the matter was remanded back to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. 7. The Assessing Authority after considering the submissions on behalf of the assessee held that the nomenclature given to the entry neither makes it taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er: We have heard both sides. It has been brought to our notice that exactly in similar circumstances in the case of United Breweries Ltd., the Tribunal upheld the finding of CIT(A) where it has been held that section 41(1) has no application. In the present case learned CIT(A) allowed relief to the assessee following the said decision and also the decision of Supreme Court in the case of Kesaria Tea Co. Ltd., (254 ITR 434), upholding that a unilateral action by the assessee in writing back a liability does not amount to the assessee enjoying benefit to be brought to tax as profit u/s.41(1) of the Act. On verification of the materials, it was found by the CIT(A) that these credit balances occurred in earlier years due to wrong coding of account heads. These amounts were already included in sales turnover of respective years and suffered tax. The company has now written back to the credit side of the profit and loss account. Therefore, section 41(1), has no application in the present case. Looking to the circumstances above and the issue is covered by the decision of the Tribunal, we are not inclined to interfere with the finding recorded by the CIT(A). 9. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of compensation of Rs..5.31 crores to be paid by the assessee to SDPL for the loss of SDPL s source of income. It is because the assessee gained advantages whereas the said SDPL incurred loss. The Assessing Authority held that the assessee has got a benefit of enduring nature by way of improvement in the running of the distillery even compared to the situation when it was acquired back from SDPL in 1993. The payment of Rs..5.31 crores paid for regaining the unit is in the nature of a capital payment and it cannot be allowed as a revenue expenditure. The payment of compensation was to provide a title, a right to manufacture on his own which has regained its business advantage. The said amount represents amount paid to improve the right in property. However, the appellate commission relying on the judgment of the Apex Court held the Hon ble arbitrator has held the assessee gained a overall increase in profit. The assessee has spent the said money for earning profit and therefore it shall be allowed as a business expenditure. The Tribunal after referring to the judgments of the Apex Court held, in terms of the recitals in the arbitration award, there is no acquisition of any assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Vs. H.P.Global Soft Limited reported in (2012) 349 ITR 462 (Kar.) has held at para 17 as under: The authorities both in this country and in England have pointed out the difficulties in formulating the precise rules for distinguishing capital expenditure from revenue expenditure. The line of demarcation has been found to be very thin. Certain broad tests have, however, been laid down. Each case turns on its own facts. The aim and object of the expenditure would determine the character of the expenditure whether it is capital expenditure or a revenue expenditure. When an expenditure is made for acquiring or bringing into existence an asset or an advantage for the enduring benefit of the business, it is properly attributable to capital and is of nature if capital expenditure. In cases where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. 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. Expenditure may be treated as properly attribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of an enduring character so as to characterize as capital expenditure. 14. Therefore, from the aforesaid judgment it is clear, keeping in mind the aforesaid legal principles with the given set of facts the court has to find out whether a particular expenditure is capital in nature or revenue in nature. 15. In the instant case the undisputed facts are the assessee s sister concern M/s. Mysore Wine Products Limited leased its distillery factory to SDPL in 1986 as it could not handle the labour problems then. SDPL had entered into license manufacturing agreement with the assessee to manufacture assessee s products. SDPL ran the management of this factory successfully, solved the labour problems, invested some amounts in machinery and turned around the factory from a loss making company to a profit making company. In 1993 the assessee decided to take back the said factory from SDPL. Through a subsidiary concern CDL (which merged with the assessee s concern on 31.3.1994) assessee paid a consideration of Rs..4.5 crores and took back the factory. The consideration paid pertained to stock available and machinery introduced by SDPL and it did not contain any element of compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quor under an agreement entered into between them and the assessee was marketing it. It was in complete management and possession of this unit. The only right of assessee which was rental amount or fee for the licence granted to them. By payment of Rs..5.31 crores the entire profit making unit is transferred back to the assessee. This expenditure was made for regaining the asset as well as an advantage for the enduring benefit of the assessee s business. It is properly attributable to capital and capital expenditure. It is not a case where the advantage consists merely in facilitating the assessee s trading operations or enabling the management and conduct the assessee s business to be carried on more efficiently or more profitably. It is not the expenditure which is incurred to improve the business of the concern or spend for its expansion of its business or for substantial replacement of its equipment. This amount is paid to regain the profit making unit which had gone out of the hand of the assessee and therefore, the expenditure incurred in regaining this profit company unit is in the nature of a capital expenditure and not the revenue expenditure. Therefore, the Appellate Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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