TMI Blog2016 (12) TMI 1658X X X X Extracts X X X X X X X X Extracts X X X X ..... he department. 2. This court while admitting the appeal on 27.5.2003 had framed following substantial question of law:- Whether the recurring expenditure for removal of overburden and other related activities for extraction of existing minerals from mines under operation is not allowable under Section 37(1) of the Act being revenue in nature and an integral part of revenue generating activities and therefore whether the learned Income Tax Appellate Tribunal's order in disallowing such expenditure of ₹ 85.08 lacs by treating the same as capital in nature is justified and correct? 3. Counsel for the appellant contended that the expenditure which has been shown by the appellant was revenue expenditure. He further submits that the CIT(A) while giving detailed reasons has held in favour of the assessee and has discussed the complete factual matrix. After taking into consideration, the facts in favour of the assessee, it held that the expenditure are revenue expenses. 4 In this regard, the order of the Tribunal reads as under:- On consideration of the facts of the case as detailed by the A/R, it is seen that the amount had been paid to the contractor to remove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laring has been done or not is a finding of fact. That finding was binding on the High Court. It is equally binding on us. In view of that finding, the High Court was justified in holding that the expenditure in dispute is a revenue expenditure. This Court had in various decisions laid down the principles to be applied in distinguishing revenue expenditure from capital expenditure. In Bombay Steam Navigation Co. v. Commr. of Income-tax, Bombay AIR 1965 SC 1201 this Court observed: Whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of Principles of Commercial Trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure. 5.1 In case of Empi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re are always cases falling indisputably on one or the other side of the line and it is a familiar argument in tax courts that the case under review bears close analogy to a case falling on the right side of the line and must therefore be decided in the same manner. If we apply this method, the case closes to the present one that we can find is Nchanga Consolidated Copper Mines case (supra). The facts of this case were that three companies which were engaged in the business of copper mining formed a group and consequent on a steep fall in- the price of copper in the world market, this group decided voluntarily to cut its production by 10 per cent which for the three companies together meant a cut of 27000 tons for the year in question. It was agreed between the three companies that for the purpose of giving effect to this cut, company should cease production for one year and that the assesses company and company R should undertake between them the whole group programme for the year reduced by the overall cut of 27000 tons and should pay compensation to company for the abandonment of its production for the year. Pursuant to this agreement the assessee paid to company 1,384,565 by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consider each and every case in detail or to analyse the tests laid down in various decisions. However, before we consider the facts and circumstances of the case, it is necessary to refer to some of the leading cases laying down guidelines for deter- mining the question. In Assam Bengal Cement Co. Ltd. v. The Commissioner of Income Tax, West Bengal, [1955] 1 SCR 972,'this Court observed that in the great diversity of human affairs and the complicated nature of business operation, it is difficult to lay down a test which would apply to all situations. One has, therefore, to apply the criteria from the business point of view in order to determine whether on fair appreciation of the whole situation the expenditure incurred for a particular matter is of the nature of capital expenditure or a revenue expenditure. The Court laid down a simple test for determining the nature of the expenditure. It observed: Whether payments made by an assessee for removal of any restriction or obstacle to its business would be in the nature of capital or revenue expenditure, has been considered by courts. In Commissioner of Inland Revenue v. Carron Company, [1966-69] 45 Tax Cases 13 the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which confined their business under the out of date Charter of 1773, the expenditure was on revenue account. In Empire Jute Company v. C.I. T, [1980] 124 ITR I, this Court held that expenditure made by an assessee for the purpose of removing the restriction on the number of working hours with a view to increase its profits, was in the nature of revenue expenditure. The Court observed that if the advantage consists merely in facilitating the assessee's trading operations of enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving he fixed capital untouched, the expenditure would be on revenue account even though the advantage may endure for an indefinite future. We agree with the view taken in the aforesaid two decisions. In our opinion where the assessee has an existing right to carry on a business, any expenditure made by it during the course of business for the purpose of removal of any restriction or obstruction or disability would be on revenue account, provided the expenditure does not acquire any capital asset. Payments made for removal of restriction, obstruction or disability may result in acqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct- ible. Commissioner of Income-tax v. Kolhia Hirdagarh Co. Ltd. (3) was a case of commission on every ton of coal raised, and it was held to be revenue expenditure. These cases are entirely different, and can be of no authority for payments, such as we have. Reliance was also placed upon Parmanand Haveli Ram In re (4), Nand Lal Bhoj Raj, In re (5) and Commissioner of Income-tax v. Tika Ram Sons (6). In the first two, expenditure to acquire lands bearing certain salts in the earth, which could be converted into potassium nitrate, sodium chloride or saltpetre, was regarded as revenue expenditure. They follow the line of reasoning which the same Court adopted in the Full Bench case of Benarsidas (7), which we have considered in detail earlier. They involved shortterm contracts, and in the Full Bench case it was stated that the case of long-term leases was on a different footing, though, in our opinion, the decisive factors in such cases will be the nature of the acquisition and the reason for the payment. Cases on the other side-of the line where payments were regarded as capital expenditure are Commissioner of Income-tax v. Chengalroya Mudaliar (8) and Chengalvaroya Chettiar v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liar facts where the liability was not accepted but subsequently for the year 1992-93, the Corporation has accepted the liability which was shown in the books of account and in view of the matter additions made by the tribunal for the relevant year would not be applicable in the changed circumstances. Since, they accepted the liability, the resolution which is sought to be passed on 28.8.1992 was administrative formality but for the Income-tax purpose it is shown in the books of account mercantile system, therefore, though the point raised by Mr. Singhi is remained an academic issue but facts and law in mercantile system which is debited for the relevant year i.e. 1992-93. 10. It is thus very clear that the survey expenses are almost identical and hence required to be allowed as revenue expenses. 11. In view of the observations made by the Supreme Court in the Judgment of Empire Jute Co. Ltd. vs. Commissioner of Income Tax (Supra), we are of the opinion that the expenses which gives fruitful result require to be done according to the necessity of relevant time and development with the nature of expenses. 12. In that view of the matter, it cannot be capital expenses and is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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