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TMI Blog2011 (12) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... case and in law, the ITAT has erred in holding that the appellant was not entitled to deduct the amount provided under mercantile system of accounting towards the liability on account of expenditure to be incurred in removal of encroachments in and around the technical area of the Airport which was necessitated out of safety and security consideration in the normal course of business of authority enjoined with the responsibilities of maintenance and operation of airports all over India? (ii) Whether on the facts and circumstances of the case and in law, the ITAT was justified in treating the amount raised in proforma invoices as income relying on its order for the assessment year 1998-99? (iii)Whether the order passed by the ITAT is perverse in law and on facts of the case?" 2. It is not necessary to state in detail the factual matrix. Our purpose shall be served by mentioning the material facts, that too, in brief, which touch upon the aforesaid question. 3. The appellant Airport Authority of India is a statutory Authority constituted first under the International Airports Authority of India, Act, 1972 when it took over the Central Warehousing Corporation. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal encroachments were sought to be removed with the help of the State Governments. It was further submitted that expenditure on such removal was estimated at about Rs.200 crore in Mumbai alone. Similar situations existed in other metropolitan cities. Since removal of encroachments was a on-going process, a liability of Rs.20.00 crores was provided in each of these assessment years in the books of accounts of the assessee. It was also argued that apart from making provision certain amount was in fact paid as well every year. 6. On the aforesaid basis the case set up by the assessee was that the expenditure was only to secure the existing assets and no new assets came into existence in the books of the assessee and therefore such an expenditure was revenue in nature. It was further submitted that since the assessee was maintaining the books of accounts on mercantile method, it was necessary to take this liability in its books. Reliance was placed by the assessee in the case of Bharat Earth Movers Vs. CIT, 112 ITR 61 to argue that if a liability had been incurred, the deduction should be allowed even though it may have to be quantified and discharged at a future date. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for setting aside the aforesaid ex parte order which was allowed by this Court vide a detailed judgment which is reported in 286 ITR 323. Thereafter, the reference was heard afresh. After hearing the counsel for the parties, the Division Bench of this Court passed orders dated 6th October, 2006 reiterating the ex parte view taken by the Division Bench in its order dated 15th October, 2001. While deciding the question in the aforesaid manner the discussion which ensued is as under:- "We have heard learned Counsel for the Revenue. There is no appearance on behalf of assessed in spite of notice. Learned Counsel for the Revenue submitted that the Tribunal has analysed the factual position and has come to hold that the expenditure incurred resulted in bringing into existence an enduring benefit and, Therefore, was rightly held to be capital in nature. In V. Jaganmohan Rao v. Commissioner of Income Tax [1970]75ITR373(SC) it was held that where money is paid to perfect a title or as consideration for getting rid of a defect in the title or a threat of litigation the payment would be a capital payment and not a revenue payment. In Sitalpur Sugar Works Ltd. v. Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs in computing its profits. The Appellate Tribunal held that the sum was allowable as a deduction as it was a revenue expenditure. But the High Court, on a reference, held that the amount was capital expenditure. On appeal to the Supreme Court, the decision of the High Court was reversed holding that the amount was spent on the removal of a restriction which obstructed the carrying on of the business of mining within a particular area in respect of which the appellant had already acquired mining rights. The payment of Rs. 3 lakhs was not made for initiating the business of mining operations or for acquiring any right; the payment was made for shifting the railway station, track, etc, i.e. to remove an obstruction to facilitate the business of mining, and it did not bring into existence any advantage of an enduring nature. The expenditure was on revenue account. The Supreme Court took note of its various judgments in earlier cases decided by it and noted the following simple test laid down by it in Assam Bengal Cement Co. Ltd. Vs. CIT (1995) 25 ITR 34 for determining the nature of expenditure:- "if the expenditure is made for acquiring or bringing into existence an asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the business, if that be so, it will be in the nature of capital expenditure. If the expenditure, on the other hand, is for running the business or working it, with a view to produce profits, it would be in the nature of revenue expenditure; (ii) it is the aim and object of expenditure, which would, determine its character and not the source and manner of its payment; (iii) the test of 'once and for all' payment i.e., a lump sum payment made, in respect of, a transaction is an inconclusive test. The character of payment can be determined by looking at what is the true nature of the asset which is acquired and not by the fact whether it is a payment in 'lump sum' or in an instalment. In applying the test of an advantage of an enduring nature, it would not be proper, to look at the advantage obtained, as lasting forever. The distinction which is required to be drawn is, whether the expense has been incurred to do away with, what is a recurring expense for running a business, as against, an expense undertaken for the benefit of the business as a whole; (iv) an expense incurred for acquisition of a source of profit or income would in the absence of any contrary circumstance, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f time become obsolete; (vii) while determining the nature of expenditure, given the diversity of human affairs and complicated nature of business; the test enunciated by courts have to be applied from a business point of view and on a fair appreciation of the whole fact situation before concluding whether the expenditure is in the nature of capital or revenue" 13. When we apply the aforesaid test laid down by this Court as well as the ratio of Bikarner Gyupsum (supra) to the facts of this case, a conclusion would be that the expenditure in question by the assessee was revenue in nature. It is not in dispute that the land belongs to the assessee. Certain encroachers in all these airports had encroached upon the part of the land. In the schemes formulated by the Government for removal of these encroachers and rehabilitate them at other places, if the assessee had paid the amount that amount is not for acquisition of new assets. The payment was made to facilitate its smooth functioning of the business i.e. in relation to carrying on the business in a profitable manner. 14. We are therefore of the opinion that the Division Bench of this Court in Airport Authority of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the money and the person to whom the money had been paid had not been stated. 17. No doubt, having regard to the judgment of the Apex Court in Bharat Earth Movers Vs. CIT, 245 ITR 428 which laid down that the liability should have been actually incurred in the year and it should be capable of reasonable ascertainment, the assessee is to prove that such a liability had actually been incurred and was capable of reasonable ascertainment. A finding of fact is arrived at that no such ascertainment of liability could be proved by the assessee. To that extent the order of the Tribunal cannot be faulted with. However, it would be necessary to mention at this stage that certain documents were produced before us by the learned counsel for the assessee to show that amount of Rs. 16.01 crores in the assessment year 1998-99 was in fact paid and similar amounts were paid in other years as well. Once we have held that such amounts are paid, these are admissible deductions being revenue in nature, we answer the question no.1 in favour of the assessee and against the Revenue. At the same time, we hold that the deduction would be allowed by the Assessing Officer only after the assessee fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as commercial departments since they have to be provided space for the performance of duty. Therefore, no regular revenue was being generated. The advices were only proforma in nature. The Assessing Officer, however, did not accept the aforesaid plea and treated the amount of proform advices as income of the assessee. The plea of the assessee that there was no „real income‟ accrued to the assessee was turn down. The CIT (A) upheld the aforesaid addition, on the ground that some of these government agencies had in fact paid the amount. On this very reasoning, the Tribunal has also rejected the ground of the assessee. The question is as to whether there is a „real income‟ which has accrued to the assessee. This real income theory is accepted by the Apex Court in State Bank of Travancore Vs. CIT, (1986) 158 ITR 102. As per this judgment, the concept of real income is applicable in judging whether there has been income or not. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income which does not materialized. This principle is applicable whether the accounts are maintained on cash system ..... X X X X Extracts X X X X X X X X Extracts X X X X
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