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Commissioner of Income-Tax Versus Glen View Rubber Company P. Limited.

2007 (1) TMI 121 - KERALA High Court

Dated:- 30-1-2007 - K. S. RADHAKRISHNAN., K. BALAKRISHNAN NAIR., M. N. KRISHNAN. JUDGMENT K. S. RADHAKRISHNAN ACTG. C. J.- This matter has been placed before us on a reference made by the Division Bench after having doubted the correctness of the Bench decision of this court in CIT v. Steel Complex Ltd. [1999] 238 ITR 1054, wherein this court has taken the view that the expenditure incurred on the installation of water treatment plant and fume extraction plant is revenue expenditure and not capi .....

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on of the Kerala State Pollution Control Board. For the year ended March 31, 1991, relevant to the assessment year 1991-92, return of income was furnished by the assessee on December 30, 1991, showing a net income of ₹ 4,28,840. The assessee had stated that it expended an amount of ₹ 4,31,017 for installation of water treatment plant and claimed it as revenue expenditure. The assessing authority took the view that water treatment plant is an asset of permanent nature and has come int .....

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appeal before the Commissioner of Income-tax (Appeals). The Commissioner allowed the appeal placing reliance on the decision of the Income-tax Appellate Tribunal, Co chin Bench, in Steel Complex Ltd. v. Deputy CIT (Asst.), Special Range in I.T.A. No. 792/(Coch)/1989 dated June 26, 1991, and the assessing authority was directed to treat the expenditure as revenue expenditure. Aggrieved by the order of the Commissioner, the Revenue took up the matter in appeal before the Income-tax Appellate Tribu .....

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he expenditure incurred for installation of water treatment plant is revenue expenditure. Counsel submitted that the principle laid down by the apex court in Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377 was not correctly applied by this court while arriving at that conclusion. Counsel submitted that a water effluent plant is of a permanent nature with an enduring advantage to the assessee and the fact that due to installation of the plant the production or manufacture has not been i .....

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not in any way enhanced the production of centrifuged latex and it has not contributed any improvement in the quality of product and it cannot be said that the expenditure incurred for installation of the plant is capital in nature. Counsel submitted that the principle laid down by the apex court in Alembic Chemical Works Co.'s case [1989] 177 ITR 377 has been correctly applied in Steel Complex Ltd.'s case [1999] 238 ITR 1054 (Ker) warranting no interference and the S. L. P. (Civil) C. C .....

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e and it is not surprising that no one test or principle or rule of thumb is paramount in deciding such issues. Such a question has to be answered in the light of all the circumstances which are reasonable to take into account and the weight which must be given to a particular circumstance in a particular case must depend rather on common sense than on strict application of any single legal principle. The apex court in CIT v. Associated Cement Companies Ltd. [1988] 172 ITR 257 held that there ma .....

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wable on an application of this test. In Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 the apex court laid down a simple test for determining the nature of the expenditure and held as follows: "If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If, on the other hand, it is made not for the purpose of bringing into existenc .....

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the expenditure whether it is a capital expenditure or a revenue expenditure." All the same the court observed that it is difficult to lay down a test which would apply to all the situations. One has therefore to apply the criteria from the business point of view in order to determine whether on a fair appreciation of the whole situation the expenditure incurred for a particular matter is in the nature of capital expenditure or revenue expenditure. Again in K. T. M. T. M. Abdul Kayoom v. C .....

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cases. In Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT [1965] 56 ITR 52 the apex court basing on the facts and circumstances of the case held that the assessee's claim was not admissible, as the expenditure was related to the acquisition of an asset or a right of a permanent character the possession of which was a condition for carrying on the business. Relying on the various decisions of the apex court as well as of the English courts the apex court in Alembic Chemical Works Co.'s .....

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articular case might reasonably be held to fall. These tests are generally efficacious and serve as useful servants, but as masters they tend to be overexacting." In Alembic Chemical Works Co.'s case [1989] 177 ITR 377 (SC), the question examined by the apex court was whether the assessee engaged in the manufacture of antibiotics and penicillin has acquired the know-how to produce higher yield and sub-culture of high yielding strain of penicillin and whether the expenditure incurred for .....

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hat the expenditure incurred is revenue expenditure and not capital expenditure. The apex court in Bikaner Gypsums Ltd. v. CIT [1991] 187 ITR 39, held 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. This court in Steel Complex Ltd.'s case [1999] 238 ITR 105 .....

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Court in Alembic Chemical Works Co.'s case [1989] 177 ITR 377 that the expenditure incurred on installation of water treatment plant and fume extraction plant is revenue expenditure. The facts we get in the instant case are entirely different. The facts of this case would show that the water treatment plant was installed in compliance with the statutory requirements and is of a permanent nature. We hold that the ratio laid down by the Division Bench in Steel Complex Ltd.'s case [1999] 23 .....

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