TMI Blog2016 (2) TMI 711X X X X Extracts X X X X X X X X Extracts X X X X ..... ure - 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 the structure vested in the Government and the assessee has to pay rent of ₹ 2.50 per unit per month to the Government. After expiry of period of lease, the assessee has option to purchase said structure or then it is open to the Government to remove the same and to return back the land. Thus, the basic difference in scheme before us & one looked into in Commissioner of Income Tax vs. National Machinery Manufacturers Ltd. (1991 (3) TMI 115 - BOMBAY High Court ) is apparent. In this situation, 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 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e looked into by the Incometax Officer as also the appellate authority for said purpose. 05] While drawing the attention to consideration on same lines by the ITAT on question No.2, he submits that for same reasons, payment of ₹ 81,885/ought not to have been treated as revenue expenditure. 06] He also submits that when such expenditure, may be towards traveling is undertaken in relation to new project, 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 will be making reference to the same at appropriate juncture. 07] Shri Dewani, learned Advocate for the respondent, on the other hand, invites attention to the fact that none of the questions referred to this Court allow it to open any findings on facts recorded by the I.T.A.T. He, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebited 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 account of construction of quarters are given therein and then again explanation furnished by the assessee to treat it as revenue expenditure on 14/02/1984, has been looked into. In the face of this material, he has not accepted the stand of the assessee that the amount stands qualified as revenue expenditure. The material is not in dispute though inference or findings recorded on its strength are seriously in debate. 09] The C.I.T. (Appeals) has addressed this question in its order dated 30/08/1985 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, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the same were for the purposes of establishing a new plant or project. Thus, disallowance of payment of ₹ 1,58,000/made up on this account was confirmed by it. However, insofar as the expenditure on travelling expenses 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 in securing for the assessee any asset or benefit. It has then made reference to judgment of Bombay High Court in the case of Antifriction Bearings Corporation Ltd vs. C.I.T., reported at 114 ITR 335. 15] Dealing with the payments made to M/s. Mountain States Research and Development, U.S.A., the I.T.A.T. accepted that these charges were incurred in connection with the assessee s existing business with the intention of improving its profitability. At the end of paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recedents. 18] Shri Bhoot, learned Advocate has drawn support from the judgment of the Division Bench of this Court, dated 15/06/2012 in Income Tax Reference No.67 of 1989 to urge that, where the expenditure is incurred for project/ feasibility report in connection with exploring the feasibility of a new business, it is capital in nature. We find that the Division Bench there has relied upon earlier judgments in the matter of C.I.T. vs. J.K. Chemicals Ltd., reported at 207 ITR 985 and Trade Wings Limited vs. C.I.T., reported at 185 ITR 267. However, the judgment dated 15/06/2012 does not show whether a new project or venture 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 that merely because project did not materialize, the nature of the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concessional rent was on account of the fact 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 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 substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was a saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure. Moreover, assessee in the present case did not get any capital asset by spending the said amounts. The assessee, therefore, could not have claimed any depreciation. Looking to the nature of the advantage which the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In view of undisputed findings on facts mentioned supra, the above logic also holds good here. 25] The learned Counsel for the department has relied upon the judgment of Division Bench of this Court in the matter of Commissioner of IncomeTax vs. National Machinery Manufacturers Ltd. reported at 191 ITR 483 to submit that there, when employer made contribution towards cost of construction of tenements to be allotted to his employees, the expenditure 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 to its workmen. The scheme provided that the ownership of the houses would vest in the State Government or the Housing Boards, as the case may be. The allotment of houses was to be done by the Managing Committee, which had representatives of the em ..... X X X X Extracts X X X X X X X X Extracts X X X X
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