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2015 (5) TMI 119 - BOMBAY HIGH COURT

2015 (5) TMI 119 - BOMBAY HIGH COURT - [2015] 378 ITR 569 - Appeal admitted by the High Court on the following grounds:

(1) Whether on the facts andin the circumstances of the case and in law, the ITAT was right in holding that notional sales tax exemption amount of ₹ 38,62,33,200/- is a capital receipt not liable to income tax?

(2) Whether on the facts and in the circumstances of the case and in law, the ITAT was right in allowing as a revenue deduction the contribut .....

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ue challenges the order passed by the Income Tax Appellate Tribunal, Bench at Mumbai, dated 29th June,2012. 2. The Tribunal was dealing with four Appeals and out of which two were filed by the assessee and two were filed by the revenue. They pertain to two assessment years 2003-04 and 2004-05. 3. Mr. Suresh Kumar appearing for the revenue in support of this Appeal submits that the substantial questions of law as proposed and from page 7 of the paper book arise for determination and consideration .....

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blishing industries in the backward area of the Gandhar. The Assessing Officer did not accept the contention of the assessee company that the sales tax exemption was a capital receipt not chargeable to tax and determined this amount as a revenue receipt. 5. We need not advert to the rival contentions on this point or issue because in all fairness both sides have pointed out that one of the substantial question of law as proposed in the present Appeal is already admitted by this Court in Income T .....

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one admitted above are arising from pure factual findings. In relation to the question no. (B) Mr. Mistri would invite our attention to the discussion in the Tribunal's order. He would submit that the Tribunal in relation to this question has done nothing except relying upon the earlier orders and for assessment years 2000-01, 2001-02 and 2002-03. Therefore, the factual findings in earlier orders bind the revenue. There is no distinction or difference pointed out either before the Tribunal o .....

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computed. There was a chart placed before the Tribunal giving details of the donation/contribution. Similar contribution was made for earlier assessment years. The Tribunal relied upon certain decisions rendered by it and the High Court of Karnataka. This expenditure was held to be revenue in nature. In that regard, at paragraph 14 of the Tribunal's order (running page 109 and 111) we find that the Tribunal has merely followed and applied its earlier orders for prior assessment years in cas .....

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wn, operate, transfer contract with M/s. Dodsal Ltd. for its Dahej to Vadodra Pipeline Project by making one time payment of ₹ 102,03,43,311/-, then, the assesse company had purchased a commercial right to operate and maintain the to terminate the build, own, operate, transfer contract with M/s. Dodsal Ltd. for its Dahej to Vadodra Pipeline Project by making one time payment of ₹ 102,03,43,311/-, then, the assesse company had purchased a commercial right to operate and maintain the p .....

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pread over the entire lease period of 25 years. 11. In relation to these questions, Mr. Mistri would submit that the factual findings of the Tribunal are in consonance with the law laid down and repeatedly by the Hon'ble Supreme Court. He relies upon the judgment of the Hon'ble Supreme Court in case of Commissioner of Income Tax v/s. Madras Auto Service(P.) Ltd. reported in (1998) 233 ITR 468. He submits that the Hon'ble Supreme Court has earlier laid down the principle as to when an .....

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epped in. The assessee has paid a minimum agreed amount. This very sum, if paid in terms of the earlier contractual stipulation can be treated as revenue expenditure. The pipeline is not owned by the assessee company. The pipeline is laid by other legal entity and what the assessee obtained for itself is a right to use it. For that purpose, the agreement was executed and one of the terms pertain to payment. The payment was to be made monthly. Now, the Assessee has derived some benefit by making .....

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ts of the parties have been noted. The question was in relation to the assessee's agreement with M/s. Dodsal Ltd. The Assessing Officer was of the view that the expenditure on payment of lease rent and maintenance of the pipeline as per the original BOOT agreement with Dodsal Ltd. has resulted in commercial advantage or benefit of enduring nature to the assessee in the form of operation and maintenance of the pipeline. The Assessing Officer was of the view that after termination of the agree .....

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the assessing officer. 14. The aggrieved assessee, therefore, approached the Tribunal and the Tribunal's attention was invited to the judgments of the Hon'ble Supreme Court right from the case of Assam Bengal Cement Co. V/s. CIT (1955) 27 ITR 34 and equally the judgment in the case of Madras Auto Service (supra) where very extensive arguments were canvassed. The Tribunal found that the contract with M/s. Dodsal Ltd. was of December 1995. Pursuant thereto, Dodsal built, maintained and op .....

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after 5 years of commissioning based on a mutual understanding. Nothing of this nature transpired and the agreement continued. The pipeline was vital for the operations and functions of the assessee and, hence, when the present assessee company stepped in it decided to take a commercial decision. It made a lump sum payment of the above sum. This payment was made in the 3 years, namely, financial year ending 31st March, 2001, 31st March, 2002 and 31st March,2003. The Tribunal held that there is .....

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ith M/s. Dodsal was in force, the assessee had never claimed ownership of the pipeline. Even after reconstructing of the agreement, the ICICI Ltd. stepped in. The other position has not changed. Now the ICICI Ltd. claimed the ownership rights and the assessee only got control of the operation and maintenance of the pipeline which is stated to be vital for its operation and functioning. 15. We find that the Tribunal's discussion and reasoning in paras 24 to 26 of the impugned judgment rightly .....

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of premises Nos 64 and 64/1 situated at Sri Narasimharaja Road, Bangalore for a period of 39 years commencing from 1-1-1966. Under the terms and conditions of the lease, the lessee (that is to say the assessee), had the right to demolish at its own expense the existing premises and appropriate to itself all the material thereof without paying to the lessors any compensation and construct a new building thereon to suit the purpose of their business as per the plan approved by the lessors Under cl .....

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nant for a period of 39 years under the existing lease subject to the payment of rent and observation of other terms and conditions of the lease. The lessee shall not be entitled under any circumstances for any compensation whatsoever on account of its putting up the new construction in the place of the old. Acting under the lease agreement the assessee invested a sum of ₹ 1,62,835 in the previous year relevant to the assessment year 1968-69 and ₹ 50,937 during the succeeding year in .....

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penditure, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else and spending money for such construction? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure, therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made s .....

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d in a commercial sense, the expenditure appears to be revenue expenditure. Expenditure may be treated as properly attributable to capital when it 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. If what is got rid of by a lump sum payment is an annual business expenses chargeable against revenue, the lump sum payment should equally be regarded as a business expenses, but if the lump sum payment brings in .....

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hip of the lessor. Therefore, by spending this money, the assessee did not acquire any capital asset. The only advantage which the assessee derived by spending the money was that it got the lease of a new building at a low rent. From the business point of view, therefore, the assessee got the benefit of reduced rent. The High Court has, therefore, rightly considered this as obtaining a business advantage. The expenditure is, therefore, to be treated as revenue expenditure. All these cases have l .....

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fully. In the present case also, since the asset created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern premises at a low rent, thus saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the conclusion that the expenditure should be looked upon as revenue expenditure." 16. In the circumstances, therefore, we do not find that merely making a lump .....

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think that it was difficult for the Tribunal to have sustained the revenue's view point. If the registration fees and stamp duty are nothing but a duty on the instrument and not on the transaction covered by the instrument, then, there was no necessity to apportion the expenditure in that behalf. The registration fees and stamp duty are on the lease transactions entered by the assessee with M/s. ICICI Ltd. The expenditure in that regard has been allowed in the first year itself and we do not .....

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assessee company relocated the reactor in the factory premises and, therefore, acquired a new and different advantage and which is of optimum user and expenditure of relocating and to the tune of ₹ 24.87 lakhs was capital in nature. 19. We are unable to agree with Mr. Suresh Kumar. In paras 40 to 45 of the impugned order, the Tribunal found that there is absolutely no change in the position and which it noted in para 45. It held that the reactor which was installed at a new place is the e .....

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e is incurred by the assessee for rationalizing, better administration and modernization of its machinery with a view to obtain maximum benefit out of the existing resources, even that expenditure is allowable in nature. It could not be treated to be a capital one. The expenditure was incurred to improve the production of the existing project, to improve the facilities and obtain increase in profitability by the use of existing assets and resources. In these circumstances, the Tribunal's con .....

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tion 40A(9) of the Income Tax Act, 1961. He would submit that every expenditure of this nature is not deductible. The only expenditure which could be claimed is the one which is stipulated by section 36(1) clause (v) and (va) of the Income Tax Act, 1961. Admittedly, making a contribution towards a club or association of the staff members is not a permissible expenditure and on basis of which a deduction can be claimed. Therefore, and since an identical question has been admitted by the High Cour .....

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ave to be made when the expenditure is in the nature of reimbursement of certain expenses incurred. He would submit that the view taken by the Division Bench of this Court in Bharat Petroleum Corporation Ltd. binds us. This is nothing but a claim for deduction towards staff sports and welfare expenses. The staff has incurred these expenses and for a avowed object. The employees of the Corporation and companies like assessee take part in various tournaments and cultural or sports activities. Ther .....

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sing the staff association. In that regard, what the Tribunal has relied upon is the contribution of ₹ 40,25,388/- to various clubs ran by and meant for the employees at Dodsal and other stations and sums were paid as an employer and which are not allowable. The stand of the assessee was that this expenditure was incurred to facilitate the management of various activities of employees or their family. The Tribunal considered the arguments and particularly that in the earlier assessment yea .....

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