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The Commissioner of Income-tax, Vidarbha, Nagpur Versus M/s. Manganese Ore India Limited

Nature of payment - revenue v/s capital expenditure - Held that:- Here the capital assets has never come into existence and the I.T.A.T. has allowed travelling expenses or ore testing charges only as revenue expenditure. This treatment is only in dispute before us. The travelling expenses or manganese ore testing charges pertaining to the existing mine allowed by the I.T.A.T. in the present facts cannot be directly corelated with the acquisition of any capital asset. We, therefore, do not find a .....

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of house of labourer - revenue v/s capital expenditure - Held that:- The scheme framed by the State Government and the M.I.D.C. basically was to construct houses for industrial employers. In the matter before us, the employer is put under obligation and accordingly on a nominal premium of ₹ 1/, it has leased out certain lands to the Central Government. The houses upon it are constructed by the Central Government and assessee has been treated as lessee thereof. The ownership and title of th .....

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, when the structure does not vest in the assessee and it has to pay monthly rent thereof to the Government, the expenditure incurred by the assessee thereon has been rightly treated as a revenue expenditure.- Decided in favour of assessee - INCOME TAX REFERENCE NOS. 150 OF 1993 - Dated:- 11-2-2016 - B.P. DHARMADHIKARI AND V.M. DESHPANDE, JJ. For The Applicant : Shri A.J. Bhoot, Adv. with Shri Anand Parchure, Adv. For The Respondent : Shri K.P. Dewani, Advocate ORAL JUDGMENT :( Per B.P. Dharmadh .....

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yment of ₹ 81,885/made to Mountain States Research & Development U.S.A. is a revenue expenditure ? (3) Whether on the facts and in the circumstances of the case, the I.T.A.T. was correct in holding that the payment of ₹ 8,06,254/made to Seltrust Engineering Co. Ltd. is a revenue expenditure ? (4) Whether on the facts and in the circumstances of the case, the I.T.A.T. was correct in holding that an amount of ₹ 29,52,638/incurred in construction of house of labourer is a reve .....

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existing project or services, consultation etc. utilized in relation thereto and similar services for the proposed/new project cannot stand on different footing, insofar as nature of expenditure is concerned. The nexus of said expenditure with the object can never be lost site of. Even if the new project can not be established, the amount spent therefor remains capital expenditure. He points out that in the present facts, the payment of ₹ 86,554/to Shri D.S. Basu of M/s. M.N. Dastur & .....

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oject, question whether such project materializes or not is entirely an irrelevant fact. He, therefore, states that the answers given to remaining to these questions by the appellate authority and by the I.T.A.T., therefore, cannot be sustained. According to him, the erection of residential quarters for its workforce is definitely an investment which is capital in nature and last question should have been answered in favour of the department. He has invited our attention to certain judgments and .....

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or for a proposed project, is not in dispute before this Court and, hence, the facts or premise on the basis of which the I.T.A.T. has proceeded further, needs to be maintained. He has taken us through the relevant observations of the I.T.A.T. to urge that none of the questions, which have been referred, can be answered in favour of the department. He has also relied upon certain judgments and will be making reference to the same little later. 08] In the backdrop of questions mentioned supra, it .....

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orded that the assessee was called upon to show how these expenses could be allowed under the head Research and Development as claimed, and according to him, expenses clearly were of capital nature. He has thereafter mentioned two letters dated 14/02/1984 and 12/03/1984. He has reproduced contents thereof. In the process, he has also reproduced paragraphs 6 and 7 of the letter, dated 29/02/1984 sent by the assessee, wherein the assessee has pointed out the scope of work entrusted to consulting f .....

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₹ 12,19,822/. Therefore, the assessee did not give details of amount of ₹ 8,74,814/. In the information furnished before him, thereafter the assessee disclosed amount debited to M/s. Seltrust Engineering Ltd. at ₹ 7,16,818.93, while in the statement filed along with letter dated 14/02/1984, that amount was mentioned as ₹ 5,12,008.98 only. Further consideration in this respect is contained in paragraph 20 of that order. The details of amount debited by the assessee on acc .....

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5 from paragraph 22 onwards. It has extracted the payments made to M/s. M.N. Dastur & Company, M/s. M.M. Suri Associates and M/s. Seltrust, U.K., which were claimed to be revenue in nature by the assessee and then noted that the I.T.O. found that claim related to new capital projects i.e. proposed ferro manganese plant, beneficiation/agglomeration plant etc. and, therefore, had disallowed that amount. It has also taken note of the fact that the I.T.O. allowed only ₹ 87,027/, out of las .....

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then dealt with contract with M/s. M.M. Suri Associates and noted that it was for feasibility report and engineering services for the proposed electrolytic manganese dioxide and electrolytic manganese metal plants at Dongri Buzurg. It has then briefly mentioned stages thereof. 11] In subparagraph (h), it has then noted that the assessee is engaged in two lines of action insofar as its research and development expenses were concerned. First line is found to be considering possibility of setting .....

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that it would constitute capital expenditure as the same was aimed at acquisition of a new plant i.e. new capital assets. Thus, it has partly allowed the appeal of the assessee. 13] In further challenge at the instance of the assessee, the I.T.A.T. has passed the order on 21/01/1991. It needs to be mentioned that before the I.T.A.T., the department had filed a crossappeal and questioned the order of C.I.T. (Appeals) insofar as answers given by it to question Nos.3 and 4 before us is concerned. 1 .....

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enses of employees of these two concerns are concerned, it held that it cannot be treated as capital ₹ 86,560/expenditure and the order of C.I.T. to that extent was found unsustainable. Thus, air fare, cost of foreign change and foreign tour expenses have been treated as revenue expenditure. It has noted that there was no material on record to establish that these expenses by themselves secured for the assessee any benefit of an enduring nature. It found that these tours have not resulted .....

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T. held that expenses on travelling amounting to ₹ 86,560/and expenses made to the firm M/s. Mountain States Research and Development, U.S.A. for testing manganese ore amounting to ₹ 81,885/totalling to ₹ 1,68,445/were liable to be treated as revenue expenditure. These two amounts are forming part of question 1 & 2 before us. In paragraph 9, the I.T.A.T. has considered payments made to M/s. Seltrust Engineering Company Limited, U.K. and found that study undertaken by this f .....

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enditure, which is subject matter of last question. It has taken note of the fact that the assessee spent that amount on construction of AType quarters. Total amount spent is ₹ 49,44,263/and against it, the assessee received Government subsidy of ₹ 19,44,750/. The assessee was under obligation to provide quarters for labour and for that the assessee gave on lease various plots of land in Balaghat, Chikla and Beldongri to the Union of India on long leases. The Government undertook con .....

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and its employees were entitled to occupy the quarters during their tenure as such. In this background, the expenditure has been found to be revenue in nature. 17] We have mentioned the facts from order of either by the C.I.T. (Appeals) or the Income Tax Officer, as these findings on fact are not in dispute before us. At this stage it will be apt to refer to certain precedents. 18] Shri Bhoot, learned Advocate has drawn support from the judgment of the Division Bench of this Court, dated 15/06/2 .....

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re in relation to which feasibility studies were carried out did actually materialize or not. Our attention has also been invited to the judgments of Delhi High Court in the matter of Triveni Engineering Works Ltd. vs. Commissioner of Incometax reported at 232 ITR 639. There the Division Bench of Delhi High Court has observed that when expenditure is incurred to bring an asset or advantage into existence, which has enduring benefit, that expenditure is capital expenditure. It has also observed t .....

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e existing project is concerned, against the department itself. 19] At this stage, Shri Bhoot, learned Advocate has also invited our attention to the judgment of Gujarat High Court in the matter of Commissioner of Income Tax vs. Shri Digvijay Cement Co. Ltd., reported at 159 ITR 253. By placing reliance upon PlacitumB, he states that the view reached by the Delhi High Court was also taken by the Gujarat High Court and, hence, even if the project does not materialize or an asset is not created, e .....

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ere was no capital asset generated by spending said amount. The expenditure has been held rightly classified as revenue expenditure. Paragraphs 4 and 5 in judgment of Hon. Apex Court reads as under : 4. The assessee in the present case has spend the amounts in question in order to construct a new building after demolishing the old building. The new building, however, from inception was to belong to the lessor and not to the assessee. The assessee,, however, had the benefit of the existing lease .....

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act that the new building was constructed by the assessee at its own costs. 5. In order to decide whether this expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view. What advantage did he 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 ex .....

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spending the said amounts. The assessee, therefore, could not have claimed any depreciation. Looking to the nature of the advantage which the assessee obtained in a commercial sense, the expenditure appears to be revenue expenditure. 21] The Division Bench of this Court, while explaining what can be treated as a benefit of enduring nature, in paragraph 20 of the judgment in the matter of Commercial of Income Tax vs. National Rayon Corporation Ltd., reported (1985) 155 ITR 413 accepted that unles .....

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ccepted to be revenue in nature. 22] Shri Bhoot, learned Advocate has pointed out other judgment of Division Bench of this Court in the matter of Ciba of India Ltd. vs. Commissioner of IncomeTax, reported at 202 ITR 1. In the said judgment, assessee was setting up a new plant and expenditure incurred on travel of foreign expert to help the assessee in the matter has been held to be capital expenditure. The facts there show that during the years under consideration, the assessee had set up a new .....

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sent facts cannot be directly corelated with the acquisition of any capital asset. We, therefore, do not find anything wrong with said exercise undertaken by the I.T.A.T. & its answers to question no. 1 & 2. 24] In so far as answer to question no. 3 is concerned, it is clear that study undertaken by the foreign company ie M/s. Seltrust Engineering Company Limited, U.K. was in connection with working of assessee's existing mines and optimization of the assessee's existing product. .....

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diture is found to be capital expenditure. Perusal of said judgment shows that the assesseecompany had entered into an agreement with Maharashtra Industrial Development Corporation. The Maharashtra Industrial Development Corporation was to construct houses for industrial employers (assessee) to solve the problem of housing their workmen, the assessee there paid sum of ₹ 1,56,800/to M.I.D.C. as its contribution towards the cost of certain tenements in return for the right to allot the same .....

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