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Pr. Commissioner of Income Tax-III Versus M/s. Sami Labs Ltd.,

2016 (7) TMI 1098 - KARNATAKA HIGH COURT

Nature of expenditure - revenue or capital - cultivation expenses to be set-off against other business incomes - commercial expediency - Held that:- In the instant case, material on record disclose, the Assessee is in the business of manufacture and export of standardized herbal extracts as well as in the manufacture of fine chemicals. In order to carry on their business, they were in need of herbal coleus plants. they thought of roping the farmers for growing said herbal plant. They provided se .....

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diency. As such the loss are primarily attributable to the business which the Assessee is carrying on and the said expenses are wholly and exclusively for the purpose of business. The said cultivation expenses incurred by the Assessee is in the nature of revenue expenditure in the course of business and the Assessee is entitled to deduction of the same as business expenditure. Therefore, the Tribunal is justified in upholding such claim and granting relief to the assessee. - Decided in favour of .....

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mercial expediency, without appreciating that the assessee has undertaken cultivation as a separate activity by way of entering into agreements with the farmers which is in the nature of contract farming?" 2. Whether on the facts and circumstances of the case, the Tribunal is right in allowing setting of losses claimed by assessee by following the decision of this Hon'ble Court in case of CIT v/s. Yokogowa when same has not reached finality"? 2. We have heard Mr.E.I.Sanmathi, learn .....

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ribunal, which has held the cultivating expenses incurred by the Assessee is in the nature of expenditure in the course of business, as such assessee is entitled to claim deduction of said expenditure. 2. The Assessee is involved in the manufacture and export of standardized herbal extracts as well as in the manufacture of fine chemicals. The assessee filed return of Income for the year 2004-2005. Assessee claimed deduction under Section 10-B of the Income Tax Act, 1961 (for short hereinafter re .....

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iness and due to commercial expediency, it had incurred cultivation expenses to the tune of ₹ 90.64 Lakhs. These expenses incurred by the Assessee were for a commercial expediency and wholly and exclusively for the purpose of its business. Therefore, the Tribunal held that authorities below were not justified in disallowing the cultivation expenses of ₹ 90.64 Lakhs claimed by the Assessee. Aggrieved by the said order, Revenue is in appeal. 3. The learned Senior Counsel appearing for .....

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see which is not in connection with the business and therefore, Assessee was not entitled to claim deduction under the heading revenue expenditure . 4. The material on record disclose that coleus is a rare herbal plant which commands appreciation value in medicinal fraternity for research. The Assessee has been in the business of manufacture and export of herbal extracts including cultivation of coleus. To maximize the production and sale of herbal extract, the assessee incurred expenditure on c .....

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r control measures for disease control. These exercises done by the assessee during the relevant period for maximizing the yield, did not result in a desired effect. In order to promote the cultivation of coleus, the farmers were roped- in to cultivate this rare herbal plant and encouraged them to opt for this crop. For this purpose, the assessee had to incur expenditure for - i) Supply of planting materials to the farmers free of cost. ii) Supply of farm inputs free of cost & iii) Arranging .....

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the assessee did not generate any agricultural income of the said income. In fact they did not involve themselves in any agricultural activities but they encouraged cultivation of coleus plants to facilitate business. In this context, they have incurred cultivation expenses to the tune of ₹ 90.64 Lakhs. The fact that Assessee had incurred a sum of ₹ 90.64 Lakhs expenses, in this regard, is not in dispute. 5. The question for consideration is, whether it is to be considered as capital .....

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erefore, allowable............. 6. In fact, the Apex Court had an occasion to consider this question in the case of Commissioner of Income Tax, Mysore Vs. Mysore Sugar Co. Ltd., reported in 1962 ITR Vol. XLVI page 649. The question which was posed for consideration was, for what was the money laid out? Was it to acquire an asset of an enduring nature for the benefit of the business or was it an outgoing in the doing of the business?. If money be lost in the first circumstance, it is a loss of ca .....

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nditure in the course of business, which has been described as current expenditure. The first may truly be regarded as on the capital side but not the second. The amount was an advance against price of one crop. The oppigedars were to get the assistance not as an investment by the assessee company in its agriculture, but only as an advance payment of price. The amount, so far as the assessee company was concerned, represented the current expenditure towards the purchase of sugarcane and it makes .....

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more than payment of advance price. The resulting loss to the assessee company was just as much a loss on the revenue side as would have been, if it had paid for the ready crop which was not delivered. 8. Therefore, the law on the point is clearly settled. If the money spent by the Assessee is by way of investment, then the Assessee is not entitled to deduct the same as expenditure. It would be in the nature of capital expenditure, which is not deductible. However, if the money spent is not for .....

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holly and exclusively for the purpose of business and the Assessee would be entitled for allowance of the said cultivation expenses as revenue expenditure. 10. In the instant case, material on record disclose, the Assessee is in the business of manufacture and export of standardized herbal extracts as well as in the manufacture of fine chemicals. In order to carry on their business, they were in need of herbal coleus plants. they thought of roping the farmers for growing said herbal plant. They .....

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