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2016 (8) TMI 213 - GUJARAT HIGH COURT

2016 (8) TMI 213 - GUJARAT HIGH COURT - TMI - Payment to GEDA - revenue expenditure or capital expenditure - Held that:- The payment is made to GEDA towards electric connection, in our view, the expenditure incurred by the assessee is in the nature of revenue expenditure. The Tribunal as well as the Commissioner (Appeal) has, therefore, rightly held the expenditure as revenue expenditure. In that view of the matter, we answer the question in favour of the assessee and against the revenue. - TAX .....

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hereby the Tribunal has partly allowed the appeal of the assessee by confirming the order of the Commissioner (Appeals). 2. While admitting the appeal, this court framed the following substantial question of law: Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the payment to GEDA is revenue expenditure as ownership is not vested with the assessee? 3. The facts of the case are that the assessee filed its return of income declaring total income .....

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directing the Assessing Officer to allow the contribution paid to GEDA. On appeal to the Tribunal, the Tribunal has held the said expenditure is revenue in nature on the ground that ownership is not vested with the assessee. 4. The learned counsel for the appellant-revenue has taken us to the reasoning adopted by the Assessing Officer for treating the expenditure as capital expenditure at paragraph No. 11 of the assessment order which is extracted below: During the year the assessee has paid  .....

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and for it s sanctioned capacity for it s wind farm project and before commencement of production of the energy. In reply to this query, the assessee has submitted vide letter dated 26.3.1998 that the above expenses should be allowed as revenue expenditure. In case the claim of the assessee is not allowed and treated as capital expense, depreciation at the rate of 50% on total amount should be given as payment of the amount has been made after September, 1994. On examination of the documents an .....

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iture which is meant for evacuation system and for its sanctioned capacity for its wind farm project is in the nature of capital expenditure and not in the nature of revenue expenditure. Moreover, the Tribunal has committed error in holding that for the purpose capital expenditure, ownership is necessary. The learned counsel for the appellant therefore contended that the Tribunal has committed in confirming the view taken by the Commissioner (Appeals). The view taken by the Assessing Officer is .....

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p Wind Farm Project in Saurashtra. The ownership of the said pipelines was not with the appellant company but with the said authority GEDA. Reliance was placed on the decision in the case of Uma Textiles 46 TTJ 52 (Ahd). The Assessing Officer has treated the said expenses as capital expenses and depreciation @ 50% was allowed. 17.1 I found the contention of the Authorized Representative is correct. Once the contribution is paid to any authority, for which ownership of the assets belong to the th .....

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uently. 7. The learned counsel for the respondent-assessee has therefore contended that the Commissioner (Appeals) has rightly treated the expenditure as revenue expenditure which the Tribunal has upheld. He has relied on the decision of this court in the case of Commissioner of Income-tax v. Abs Industries Ltd. reported in (2010) 323 ITR 350 (Gujarat) where contribution to GIDC effluent channel project was allowed as revenue expenditure i.e. in favour of the assessee. In case of Tax Appeal No. .....

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amounting to ₹ 7,26,126/. (ii) Contribution to Master Pollution Plant amounting to ₹ 2,53,000/. With regard to the payment of ₹ 7,26,126/, we find this issue is covered in favour of the assessee by the decision of the Tribunal in the case of Mahalaxmi Fabrics Mills Ltd. Vs. ACIT in ITA No. 723/Ahd/2002, wherein the Tribunal has held as under: We have heard the rival submissions and perused the record. As the facts emerge, the Revenue has not brought on record anything to sugges .....

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instant case, no such action has been taken. The High Court has awarded compensation for socio-economic upliftment of population of affected village based on turnover. We are, therefore, of the view that the same can not constitute a penalty or imposition in view of infraction of law. Our view is fortified upon the judgment in the cases of Everready Industries and Navsari Cotton & Silk Mills Ltd. (supra), which we respectfully follow. In view thereof, we hold that no infirmity is found in th .....

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assessee, as an industrial unit, under the law, being only to treat the effluent to the required degree prior to its discharge in the public drainage, the contribution made by it, on the direction of the Hon'ble Gujarat High Court, to contribute towards the laying of the network of pipelines required for the conveyance of the discharge, in view of the high cost the project entails, being outside the financial capacity of the relevant authority, being AMC, Ahmedabad ,is only an obligation tha .....

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in the past, though relevant from business standpoint, are irrelevant to the purpose of the nature and scope of the obligation under the law. Rather, if at all, these considerations only go to support its (assessee's) argument of the said contribution being made only to protect its business as a ongoing entity, and thus, its business interests/profitability, with no concomitant financial benefit/interests, so that the expenditure is only a revenue expenditure incurred wholly and exclusively .....

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that from the respective polluting unit to the common ETO, which strictly speaking, lies in the area of responsibility of the discharging unit. However, considering the totality of the facts, where the cost arises only on account of the assessee agreeing for various business reasons, to participate in a scheme framed by the Hon'ble Court, as a remedy to a perpetual public hazard i.e. a social cause, the same would form a part and parcel of the envisaged project, and thus, the entire expendit .....

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, being cost-prohibitives, required all the affected units to come together to set up a common facility for the purpose, charging the Gujarat Industrial Development Corporation (GIDC) as a Government agency to monitor the process, with OPEL acting as the agency for the actual execution of the work. In view of the same, we find this payment to be essentially as nothing more than the contribution by each individual member to the facility thus generated for the benefit of the smooth conduct of the .....

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of the court that shall hold the field, so that even as the assessee's primary obligation to treat its discharge may have been the factor weighing unit(s) to contribute also towards the pipeline, only goes to show that it looked at the larger picture, and did not adjudicate in the matter on the basis of that primary obligation alone. And the considerations that would have weighed on the said units in accepting the court's directions, could only be that of business. As such, the contribu .....

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the discharge treated, has not been spelled out in any definite terms, so that as far as we understand, it is limited to just that, with no further rights, as say of transferability etc. in the absence of which the benefit/advantage cannot be regarded as one lying in the capital field, even as held by the Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. Vs. CIT (1989) 177 ITR 377. In the facts of that case, it may be useful to recapitulate the payment/expenditure was for .....

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