TMI Blog2018 (9) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... akthi Sugars Ltd.[2010 (8) TMI 456 - MADRAS HIGH COURT], as, on facts, we are fully convinced that the decisive factors involved are unity of control, management and common fund. In the instant case, as admitted by the CIT (A), the preoperative expenses are all generally revenue expenditure and by applying a wrong test, which is not the decisive test, the Authorities had concurrently committed an error in treating the expenditure as capital expenditure. For all the above reasons, the order passed by the Tribunal calls for interference and the substantial question of law, which has been framed for consideration, has to be necessarily answered in favour of the assessee - Tax Case Appeal No.859 of 2008 - - - Dated:- 7-8-2018 - T. S. sivagnanam And V. Bhavani Subbaroyan, JJ. For the Appellant : Mr.Vikram Vijayaraghavan For the Respondent : Mrs.R.Hemalatha, SSC ORDER Judgment was delivered by T. S. Sivagnanam, J. Heard the learned counsel for the appellant as well as the learned Senior Standing Counsel for the respondent. 2. This appeal by the assessee is directed against the order by the Income Tax Appellate Tribunal, 'A' Bench, Chennai in ITA. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame is incurred for a new project. The asseseee pointed out that the expenditure were revenue expenses because they related to salaries of existing employees, rent, insurance, rates and taxes, traveling and conveyance, repairs and maintenance and miscellaneous expenditure. The Assessing Officer held that the textile project, which the assessee intended to start, being totally a new project distinguished from the manufacturing of PVC and caustic soda and the business of shipping, in which the assessee is currently engaged, the entire expenditure has to be treated as a capital expenditure. 6. The CIT (A) relied upon the decision of the Hon'ble Division Bench of this Court in the case of EID Parry (India) Ltd. Vs. CIT [reported in (2002) 257 ITR 0253] and held that since the expenditure was incurred for the purpose of setting up a new project, which was subsequently abandoned, the nature of expenditure will not change from capital to revenue. 7. Aggrieved by the same, the assessee preferred an appeal before the Tribunal. The Tribunal concurred with the findings of the CIT (A) and held that the textile project was totally a new project for the assessee, as they were engaged i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of this Court, to which, one of us (TSSJ) was a party, in the case of M/s.Tamil Nadu Magnesite Ltd. Vs. ACIT [TCA.Nos.907 and 908 of 2007 dated 05.6.2018] and a reference is made to the findings in paragraph 28 of the said judgment. Reliance is also placed on the decision of the Hon'ble Division Bench of the High Court of Delhi in the case of Jay Engineering Works Ltd. Vs. CIT [(2009) 311 ITR 0405] and it is submitted that the nature of new business is not a decisive test and what is required is unity of control, management, etc. 12. Reliance is further placed on the decision of the Hon'ble Supreme Court in the case of Produce Exchange Corporation Ltd. Vs. CIT [reported in (1970) 77 ITR 0739] for explaining the meaning of the expression 'same business' for the purpose of Section 24(2) of the Act and the decisive test to be applied. Reliance is again placed on the decision of the Hon'ble Division Bench of this Court in the case of CIT Vs. Sakthi Sugars Ltd. [reported in (2011) 339 ITR 0400] to point out the decisions, which have been laid down for identifying an expenditure and to examine as to whether it is a capital expenditure or revenue expenditure. Ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital expenditure. It is also submitted that Section 70 of the Act can have no application to the case on hand, as the said provision commences with the words 'save as otherwise provided in this Act'. This expression would mean that except as otherwise provided under the Act and the said provision cannot be called in question and the only provision, which deals with preoperative expenditure where amortization is permissible, is Section 35D of the Act. 17. The learned Senior Standing Counsel for the Revenue also places reliance on the decision of the Hon ble Division Bench of this Court in the case of M/s.Mascon Technical Services Limited now known as B.T. System Services Limited Vs. CIT III, Chennai [TCA.No.2699 of 2006 dated 23.7.2013] to support the contention that the expenditure incurred by the assessee was capital in nature. 18. We have heard the learned counsel or the parties and perused the materials placed on record. 19. The CIT (A) and the Tribunal affirmed the disallowance made by the Assessing Officer in the assessment order dated 31.3.2004 on the sole ground that when the assessee, which was engaged in the business of shipping and the manufacture of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishment of a new methanol project in the earlier years, which project was ultimately abandoned was not an allowable deduction for the assessment year 1981-82 and accordingly, this Court answered the question in favour of the Revenue and against the assessee. 22. We find that the facts in the case of EID Parry (India) Ltd., are wholly different and not applicable to the case on hand. Therefore, we are fully convinced that both the CIT (A) as well as the Tribunal wrongly applied the decision in the case of EID Parry (India) Ltd., which revolved around a different factual matrix. 23. The assessee s case is that the decisive factors for allowance are unity of control, management and common fund, etc. 24. The Revenue pointed out before us that such an issue was never raised before the CIT (A) nor before the Tribunal and cannot be permitted to raise for the first time before this Court. 25. We have perused the grounds of appeal filed before the CIT (A) wherein a specific ground has been raised stating that the Assessing Officer ought to have appreciated that the decisive factors for allowance are unity of control, management, inter connection, inter lacing, inter depen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... importance is that the control of both the ventures, the existing venture as well as the new venture, must be in the hands of one establishment or management or administration. The place of business of the existing business and the new business may not be in close proximity - it could be as far apart as Baroda and Bangalore. However, the funds utilised for the management of both the concerns must be common as reflected in the balance sheet of the company. In other words, there may be several permutations and combinations that may arise for determining whether the expenditure is revenue or capital and each case must, of course, be dealt with on the broad principles that have been accepted by the Courts as are mentioned above. 28. Thus, from the above decisions, it is clear that if unity of control, management and common fund are with the assessee, then it is no matter as to whether a totally different line of business is started by the assessee. Thus, unity of control is the decisive test and not the nature of two lines of business. In fact, the CIT (A) and the Tribunal failed to apply this decisive test and rather inclined to take note of the decision in the case of EID ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... picture of the whole operation in respect of which the expenditure has been incurred. After referring to the decision of Lord Radcliffe in CIT Vs. Nchanga Consolidated Copper Mines Ltd. reported in [1965] 58 ITR 241, it was held that it would be misleading to suppose that, in all cases, securing a benefit for the business would be prima facie capital expenditure so long as the benefit is not so transitory as to have no endurance at all . 21. Further, it was held that there may be cases where expenditure even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It was pointed out that it is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. 22. Further, it was pointed out that if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A), it has been observed that all the heads, under which, expenditure relating to textile project was incurred, are generally revenue expenditure. It is not known as to what made the Authority to take a different decision after having accepted that they are revenue expenditure and however, ultimately, the CIT (A) concluded that on account of new line of business, the expenditure was a capital expenditure, which has been held by us as not a decisive test. 37. The learned Senior Standing Counsel for the Revenue has referred to the decision of the Hon ble Division Bench of this Court in the case of M/s.Mascon Technical Services Limited wherein the expenditure was incurred by the assessee for putting up publication for the purpose of widening its capital base and though the assessee contended that this expenditure was incurred so as to improve the cash availability, it was held that the fact remains that the expenditure incurred was only for the purpose of expansion of capital base and therefore, should be construed as capital expenditure and merely because after the expenditure was incurred, just before the public issue, by reason of the orders of the Security Exchange Bureau of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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