Ita 1188/09 v. Ita 1188/09

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY ,THE 25TH DAY OF JANUARY 2019 / 5TH MAGHA, 1940 ITA.No. 1188 of 2009 AGAINST THE ORDER/JUDGMENT IN ITA 1212/COCH/2004 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 16.2.2007 APPELLANT/S:/RESPONDENT/ASSESSEE: THE COMMISSIONER OF INCOME TAXCOCHIN. BY ADV. SRI.JOSE JOSEPH, SC FOR INCOME TAX RESPONDENT/S:/APPELLANT/ASSESSEE: SOUTH INDIA CORPORATION LTD.RANI MEYYAMMA BUILDING, 5 KPK MENON ROAD,KOCHI-3. BY ADVS.SMT.LATHA ANANDSRI.K.ANAND (SR.)S.SRIDHAR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25.01.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K.VINOD CHANDRAN & ASHOK MENON, JJ. -------------------------------------------ITA No.1188 of 2009------------------------------------------- Dated this the 25[th] day of January, 2019 J U D G M E N T Vinod Chandran, J. The question of law raised in the above appeal is re-framed as follows:- “Whether in the facts and circumstancesofthecase,thepreliminaryexpenditure incurred by the assesseefor submitting a tender for the purposeof construction, equipping, operationand maintenance of two berths on Build,Operate and Transport (BOT) basis inthe Vaizag Port, can be allowed as arevenue expenditure, as permitted bythe Income Tax Appellate Tribunal,especially when the assessee wasventuring into a new line of business?” 2.The facts indicate that the assessee had a Transport Division at Chennai which showed asundry expenses of Rs.41,54,531/-. On calling fora break up, it was revealed that Rs.16,26,731/- was captioned as Vaizag Berth consultation. Theexplanation with respect to such expense was thatGovernment of India had called for tenders forconstruction, equipping, operation and maintenanceof two multi purpose berths on BOT basis for theVaizag Port. The asssessee had obtained biddocuments and engaged a consultant for preparationof the tender and finalisation of the technical andprice bids. The Company also submitted the tenderincurring an expenditure of Rs.16,26,731/-.However, Ministry of Surface Transport, Governmentof India, abandoned the project for reason ofmodifications made to the project itself. Thetender was cancelled and hence, the assesseeclaimed the aforesaid amounts as businessexpenditure. 3.The Assessing Officer was of theopinion, after perusal of the various activities -4- undertaken by the assessee, that this was a newline of business, which the assessee had enteredinto. The mere fact that a consultant was engagedfor submission of tender, was also found to be apointer to the fact of the assessee venturing intoa new line of business. Finding that the tendersubmission for the BOT project was not, in anymanner, connected with the other existingbusinesses of the assessee, the Assessing Officerfound that the expenditure can only be capital. 4.ThelearnedStandingCounsel,Government of India (Revenue) would point out thatthe Tribunal erred insofar as setting aside theorder of the Assessing Officer as confirmed by thefirst appellate authority. It is pointed out thatall expenditure on the capital side need not createan asset and hence, non-creation of an asset wouldnot be a consideration while considering the claim -5- 4.ThelearnedStandingCounsel,Government of India (Revenue) would point out thatthe Tribunal erred insofar as setting aside theorder of the Assessing Officer as confirmed by thefirst appellate authority. It is pointed out thatall expenditure on the capital side need not createan asset and hence, non-creation of an asset wouldnot be a consideration while considering the claim -5- of business expenditure. The assessee had manylines of businesses and this was a new businessinto which the assessee ventured. The expenditure,if any, caused in such business cannot be set offagainst the profits of other businesses, is thecontention. 5.The learned counsel appearing for therespondent places reliance on the judgment of theHonourable Supreme Court reported in (1989) 177 ITR377 (SC) [Alembic Chemical Works Co. Ltd. v.-Commissioner of IncomeTax]to support thecontention that the assessee was engaged in relatedactivities and had merely attempted an expansion ofits activities, which resulted in the expenditure.The venture though not new, did not take off sincethe Government of India abandoned the project. Itis also specifically argued that no question of lawarises, since the issue of a related business has been dealt with by the Tribunal and held on factsin favour of the assessee. 6.We see from the order of the Tribunalthat it had found that the assessee had beenengaged in the activity of construction ofbuilding, berths etc. for Chennai Container PrivateLimited in the Madras Port Trust. The assessee wascarrying on the business of clearing andforwarding, handling port services, cargo handling,steamer agents etc. and had also made constructionsas herein above stated in the Madras Port Trust.The Tribunal found that the assessee had alreadyentered the line of business of constructions inthe Ports and hence, submission of a tender for theVaizag Port was not in the nature of venturing intoa new line of business. 7.In Alembic Chemical Works Co. Ltd.(supra) a pharmaceutical Company had obtained technical know-how from abroad for increasing yieldof penicillin in its existing plant, the know-howbeing utilised for expansion of the existingbusiness. The Supreme Court found that there cannotbe a single criterion determinative as to whether aparticular outlay is capital or revenue. It washeld; the expenditure being 'once for all' isinconclusive to find it as spend for capital andthe test of 'enduring benefit' may break down inmany instances. “ What is relevant is the purposeof the outlay and its intended object and effect,considered in a common-sense way having regard tothe business realities”(sic-para14).TheHonourable Supreme Court held expense incurred foracquisition of technical know-how for achievinghigher production of penicillin was a businessexpenditure and not in the nature of a capitalexpenditure especially when the assessee was engaged in the business of manufacture and sale ofdrugs. We reiterate the finding of the Tribunal,which noted that the assessee was engaged in Portrelated activities and had also carried outconstructions in Ports and the submission of tenderfor a BOT project for the Vaizag Port was a relatedactivity. The project did not take off and as heldby the Supreme Court on the facts in this casethere was no enduring benefit obtained by theassessee. It broke down when the Government ofIndia cancelled the tender. We do not find anyquestion of law arising, since the facts have beengone into by the Tribunal and held in favour of theassessee. We, hence, find that the Revenue isliable to fail in the appeal and we reject theappeal refusing to answer the question of law ITA 1188/09 -9- upholding the order of the Tribunal on facts. Noorder as to costs. Sd/-K.VINOD CHANDRANJUDGESd/-ASHOK MENONJUDGE ITA 1188/09 APPELLANT'S EXHIBITS ANNEXURE-A ANNEXURE-B ANNEXURE-C jg APPENDIX ITA 1188/09 -9- upholding the order of the Tribunal on facts. Noorder as to costs. Sd/-K.VINOD CHANDRANJUDGESd/-ASHOK MENONJUDGE ITA 1188/09 APPELLANT'S EXHIBITS ANNEXURE-A ANNEXURE-B ANNEXURE-C jg APPENDIX COPY OF ORDER UNDER SECTION 143(3)DATED 18.2.2003 FOR THE ASST. YEAR2000-01. COPY OF ORDER DATED 11.5.2006 OF THECOMMISSIONER OF INCOME TAX (APPEALS). COPY OF ORDER DATED 16.2.2007 OF THEINCOME TAX APPELLATE TRIBUNAL, COCHINBENCH IN ITA NO.1212/COCH/2004. [True Copy]