TMI Blog2013 (12) TMI 1420X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding TDS to tax in the Assessment year 1992- 93 - The assessee was not allowed credit for the TDS for want of TDS Certificates - The assessee could not obtain TDS certificates - Following Sutlej Cotton Mills Limited v. CIT [1978 (9) TMI 1 - SUPREME Court] - What is material is the factors or the circumstances which cause loss and the true nature and character of loss - If the loss occurred during the course of carrying on the business, it is incidental to it and hence allowable - The assessee having suffered loss, the expenditure had to be allowed as revenue expenditure - Decided against Revenue. - ITA No. 277 of 2004 - - - Dated:- 15-11-2013 - Rajive Bhalla And Dr. Bharat Bhushan Parsoon,JJ. For the Appellant : Mr. Rajesh Katoch, Advocate For the Respondent : Mr. O. P. Goel, Senior Advocate, with Mr. R. S. Mandher, Advocate ORDER Rajive Bhalla, J. By way of this order, we shall dispose of ITAs No.277 of 2004 and 215 of 2007 as they involve adjudication of the same questions of fact and law. For the sake of convenience, facts are being taken from ITA No.277 of 2007. The revenue has filed an appeal to challenge orders passed by the Income Tax Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent shall raise compensatory afforestation on both sides of drain having tree growth with an amount of Rs.1.62 lacs which is registered to have been received from the user agency for raising and maintenance of plantation. 3. Forest land will be used only for purpose it is being permitted to use. 4. Competent authority reserves the right to add/alter any of the conditions in future. 5. Open drain, if required, will have to be lined to avoid any seepage/leakage of effluent in due course of time. 6. Effluent discharged by the industry into the channel shall be checked regularly by State Pollution Control Board so that it remains within the permissible limit and action be taken by them in case of default under intimation to this office. 7. The land given in lieu of forest land diverted should be declared as protected forest reserved forest. Breach of any of the conditions will lead to withdrawal of the permission. Forest department, the DFO Sangrur will ensure proper fulfillment of these conditions. A perusal of the approval reveals that the assessee was allowed to excavate a drain through forest land. The legal status and ownership of forest land remained unchanged. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the vicinity which can make use of this drain. Therefore, just because the appellant is making use of the drain would not make it a capital asset of the company. The AO s objection that cases relied upon can be distinguished as in those cases only contribution had been made by various assessees for carrying out capital work would not be material to the issue. Whether the assessee carries out the work himself or whether it makes contribution to another agency would not be vary material and what has to be seen is whether any capital asset of an enduring nature had come into existence. In the case of the appellant, no such capital asset had come into existence as it cannot claim any proprietorship rights over the drain. I am also inclined to accept the plea of the appellant that the drain being KACHA in nature that is, mainly the side and base being of mud only requires extensive maintenance for its up-keep and did not constitute any capital asset. However this is not very material to the issue. The fact remains that the appellant s claim would be covered by the judicial pronouncements relied upon by the appellant which are narrated above. Hence it is held that the appellant would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation afresh. The appeal was admitted on 06.04.2010 after framing the following substantial questions of law: - I. Whether on the facts and circumstances of the case, the Tribunal was justified in law in allowing the expenditure of Rs.70,79,862/- incurred by the assessee under the head Building Account , for the construction of drainage for disposal of effluents by treating the same as Revenue Expenditure, while ignoring the fact that the assessee had acquired an asset of enduring benefit in nature and enjoys exclusive rights for the usage of the same? II. Whether on the facts and circumstances of the case, the Tribunal was justified in law in allowing the expenditure of Rs.70,79,862/- incurred by the assessee under the head Building Account , for the construction of drainage for disposal of effluents by treating the same as Revenue Expenditure, while ignoring the fact that the Forest Department had permitted the assessee to construct and use the drain viz. Compensatory aforestation with an amount of Rs.1.62 lacs and lining of the open drain to avoid seepage/leakage of effluent (is an essential pre-condition for the assessee to own the drain as a tangible asset) enduring in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 . Gobind Sugar Mills Ltd. V/s Commissioner of Income Tax, (1998) 232 ITR 319 (SC); 6. Travancore Cochin Chemicals Ltd. V/s Commissioner of Income Tax, (1977) 106 ITR 900 (SC). Counsel for the assessee/respondent submits that the land provided for excavating the drain continues to vest in the Forest Department. The appellant has not been conferred proprietary rights and is merely allowed to use the land to excavate a drain for discharge of effluents. The discharge of effluents is integral to the appellant's business, thereby clearly proving the revenue nature of the expenditure. The control of the Forest Department is established by the fact that it has charged money for plantation and maintenance of the embankment, thereby clearly indicating that ownership and control of the land continues to vest in the State of Punjab with a mere right of user being conferred upon the assessee. In the absence of any proprietary rights or any right to use the drain for any other purpose, the expenditure which is necessary for the business of the assessee is a revenue expenditure. It is further submitted that as approval can be withdrawn at any time, the assessee does not possess exclusive r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has vexed Courts and tax authorities alike but in our endeavour to search for certainty and curtail discretion we tend to look for cast iron tests and infallible formulate, a course fraught with danger of missing out a crucial factor peculiar to a case or curtailing the exercise of bonafide discretion. The fine line that separates capital from revenue expenditure is extremely porous as depending upon the facts and circumstances of a case, an expenditure which may appear to be revenue in one case may validly be held to be capital in another. The factors and tests enumerated in judicial precedents, are not exhaustive but merely illustrative of what may or may not be relevant in determining whether an expense is revenue or capital. No single precedent or factor would fully answer the question whether an expenditure is revenue or capital. A bundle of factors coupled with the peculiar facts of each case that would necessarily be determinative of whether expenditure is capital or revenue. To place the mode and manner of determining whether an expenditure is revenue or capital into a straight jacket formula is well nigh impossible. Before we record our final opinion, it would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then of non consequence. In J.K.Cotton Manufactures Ltd. V/s Commissioner of Income Tax, Lucknow, (1975) 101 ITR 221, while considering this issue, the Hon ble Supreme Court held as follows: - Several tests that have been evolved over the years by this Court as also the other High Courts may be briefly formulated as follows: - (1) Bringing into existence an asset or advantage of enduring nature would lead to the inference that the expenditure disbursed is of a capital nature. These terms, such as asset or advantage of enduring nature are, however, purely descriptive rather than definitive and no rule of universal application can be laid down. Ultimately, the question will have to depend on the facts and circumstances of each case, namely, quality and quantum of the amount, the position of the parties, the object of the transaction which has impact on the business, the nature of trade for which the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inue to vest in the Forest Department and can only be used for discharge of effluents. The Forest Department shall raise compensatory afforestation on both sides of drain with an amount of Rs.1.62 lacs to be paid by the assessee. The approval can be withdrawn if the assessee is in breach of any of the conditions. The assessee, in essence, is entitled to unhindered and absolute use of the land for excavating a drain to discharge effluents from its factory. The approval, however, does not transfer proprietary rights to the assessee but transfers in its entirety possessory rights and though it limits user for the purpose of discharge of effluents, does not contain any clause that enables the State to interfere in the user of the land, till such time as the assessee continues to comply with terms and conditions of the approval. The assessee, thus, has complete and exclusive control of the land for the purpose of discharging effluents. The assessee has, admittedly, excavated a drain though on land given to it by the State which will be used by the assessee from year to year. The question whether the expenditure is capital or revenue, would have to be determined on the touchstone of whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ambers namely equalisation tank, primary settling tank, mixing channel, aeration tank, secondary settling tank and drying bed. The plant installed is a permanent tangible asset of enduring advantage to the assessee, of a free pollution-free atmosphere and environment. Benefit/advantage deprived by the assessee is not only for the year under consideration but for all succeeding assessment years. Expenditure spent for its operating and maintenance costs may be revenue, but the expenditure spent for installation of plant which is of an enduring nature is always capital. We are inclined to concur with the ratio laid down in the aforesaid judgment as any expenditure incurred in complying with statutory requirements particularly where the asset concerned would enure to the benefit of the assessee from year to year, would necessarily be an asset of enduring nature and, therefore, categorised as capital expenditure. The mere fact that the land is not owned by the assessee, is irrelevant as by excavating the drain through forest land on the basis of approval granted by the Forest Department, the assessee has been able to overcome statutory requirements for release of effluents as prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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