Schindler India Private Limited v. The Joint Commissioner Of Income Tax

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.159 OF 2012 Schindler India Private Limited ...Appellant vs. The Joint Commissioner of Income Tax...Respondent Mr. R. Murlidhar i/b. Rajesh Shah & Co. for the Appellant.Mr. Tejveer Singh for the Respondent. CORAM : S. C. DHARMADHIKARI & G. S. KULKARNI, JJ. DATE : 21[st] MARCH, 2014. P.C. :- 1]This appeal challenges the order passed by the Tribunal on 20[th] May, 2011. 2]It is submitted that the questions which have been formulated at page 10, para 4 of this paper book are the substantial questions of law. 3]It is submitted that the case of the present appellant is fully covered by the principle which has been laid down in the decision of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. V/s. CIT, reported in 124 ITR 1. sbw 4]It is submitted that initially the appellant was assembling the components imported from abroad. Thereafter there was a change in the policy. The appellant therefore started looking out for Indian suppliers of the components which were used in the making of the elevator. The Tribunal as also the Commissioner of Income Tax (Appeals) misunderstood this completely and misdirected themselves in law. The appellant was not disputing that the testing tower was changed. The appellant urged that it is the components for which the expenditure had been incurred. The expenses so incurred were not for creating any manufacturing facility. The expenditure on the facility, namely, the testing towers and the tools, fixtures and testing equipments installed therein, had already been capitalized by the appellant. The expenditure in question was incurred on the consumables used up during the process of testing. The expenditure was incurred on purchase of material (together with customs and freight), training of personnel, analysis of data etc. If this was the nature of expenditure, then the reasons assigned by the Tribunal for denying the benefit claimed would give rise to substantial question of law. 5]Alternatively and without prejudice it is submitted that there is a depreciation claim on the Cars. The sbw other substantial question of law would arise in regard to the expenses incurred on club subscription and services. That was in the case of the Managing Director who made several clients and business contacts in the clubs or chambers of the Five Star Hotel, and therefore, that was allowable as a business expenditure. In such circumstances, the rejection of the claim towards this club subscription is erroneous in law. Lastly, the claim for depreciation on Cars, though accepted, is denied only because of the meagre amount and as allegedly not pressed. In these circumstances, the appeal may be entertained and the substantial questions of law as formulated be taken as a basis for admission and entertaining the appeal. 6]We are unable to agree. In view of the above contentions, we find that the whole attempt is to seek re-appreciation and re-appraisal of the factual materials. Upon scrutinizing the entire material produced, both, the Commissioner of Income Tax (Appeals) and the Income-tax Appellate Tribunal held that the majority of the expenditure is on account of materials used for development of prototype and other components, the utilized costs of the material used by the appellant in the new project. The authorities found that assessee had created a facility of procuring components of the sbw 6]We are unable to agree. In view of the above contentions, we find that the whole attempt is to seek re-appreciation and re-appraisal of the factual materials. Upon scrutinizing the entire material produced, both, the Commissioner of Income Tax (Appeals) and the Income-tax Appellate Tribunal held that the majority of the expenditure is on account of materials used for development of prototype and other components, the utilized costs of the material used by the appellant in the new project. The authorities found that assessee had created a facility of procuring components of the sbw elevator through local vendors. Earlier these components were procured by importing and there was no manufacturing facility in India, though the same was created for that purpose. Testing towers had been erected and the expenditure incurred on the testing of elevator had already been capitalized by the assessee. Once the finding of fact is that all the materials are for creating the manufacturing facility and which has definitely an enduring benefit, namely for a long time, then, it is not something that the appellant can claim to be a temporary or transitory one. The reasoning in para 9 and 9.1 of the order of the Tribunal goes to show that the Tribunal has applied the correct tests and rejected the relief. 7]We are of the opinion that though the judgment of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. (supra) has been relied upon even before the Tribunal, the Tribunal found that the principle therein can have no application to the case of appellant. The Supreme Court on facts in that case, evolved various tests for distinguishing between capital and revenue expenditure but no test is paramount or conclusive. There is no all embracing formula which can provide a ready solution to the problem. Every case has to be decided on its own facts, keeping in mind the broad sbw picture of the whole operation in respect of which the expenditure has been incurred. The Supreme Court found in the case before it that the appellant was carrying out business of manufacture of jute. The working time agreement was entered between the members of an association restricting the number of working hours per week, for which the mill shall be entitled to work their looms. After referring to the clause of the agreement, what the Hon'ble Supreme Court found was that the appellant had purchased loom hours from four different jute manufacturing concerns and had paid a correct sum. The Tribunal held that the expenditure incurred by the assessee was in the nature of revenue expenditure and hence deductible in computing the profits. The High Court held that the amount paid was for purchase of loom hours and in the nature of capital expenditure. It was not therefore tenable. 8]That decision of the High Court was reversed by the Supreme Court by holding that the allotment of loom hours is under the working time agreement with different mills constituted merely a contractual restriction on the right of every mill under the general law to work its looms to their full capacity, and therefore, the effect of relaxing the restriction on the operation of looms to the extent of the number of working hours per sbw week transferred to it. This expenditure incurred for the purpose of removing the restriction on the number of working hours with a view to increase its profits, was revenue in nature. By purchase of loom hours no new asset has been created and there is no addition or expansion of the profit-making apparatus of the assessee. The costs of additional loom hours did not add to the fixed capital to the looms. sbw week transferred to it. This expenditure incurred for the purpose of removing the restriction on the number of working hours with a view to increase its profits, was revenue in nature. By purchase of loom hours no new asset has been created and there is no addition or expansion of the profit-making apparatus of the assessee. The costs of additional loom hours did not add to the fixed capital to the looms. 9]Therefore, the tests and the propositions which have been culled out from this judgment can be applied, provided the facts and circumstances in each case warrant such application. Once it is not a universal proposition and must be applied in the facts and circumstances of each case, then, we have no doubt that the concurrent findings do not give rise to any substantial question of law. 10]Equally, the nature of the expenses claimed as club subscription have been rightly disallowed. It is not a matter where we can re-appreciate the evidence on record. In fact, the finding of fact is that no evidence has been produced to suggest that such expenses were incurred wholly and exclusively for the purpose of business. The expenditure is personal in nature. In these circumstances, even this aspect does sbw not give rise to any substantial question of law. 11]Insofar as the depreciation on Cars is concerned, if the appellant is entitled to the benefit in terms of the judgment rendered by this Court, even then we are of the view that no substantial question of law arises on that issue. The appellant is entitled to claim depreciation on the vehicles/cars in the subsequent years. By clarifying that the observations of the Tribunal are restricted to the Assessment year in question, it would be open for the appellant to press such claim in future and seek relief in terms thereof. 12]With the above clarification, we find that the appeal does not raise any substantial question of law and it deserves to be dismissed. It is accordingly dismissed. (G. S. KULKARNI, J.) (S.C.DHARMADHIKARI, J.) wadhwa