Tax Appeal v. Nutan D. Sardessai, Jj

1 Txa4-18.dtd.09-07-19 Santosh IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO.4 OF 2018 The Commissioner of Income Tax, having office at Aayakar Bhavan, Patto-Plaza, Panaji - Panaji.…. Appellant. Versus Salgaocar Mining Industries Pvt. Ltd. Salgaocar Bhavan, Next to Doordarshan Kendra, Altinho, Panaji, Goa 403 001.…. Respondent. …. Respondent. Ms. Susan Linhares, Standing Counsel for the Appellant. Mr. P. Pardiwala, Senior Advocate with Mr. A. D. Bhobe, Ms. C.Mashelkar and Ms. K. Govekar, Advocates for the Respondent. Coram : S.C. Gupte & Nutan D. Sardessai, JJ. th July, 2019. Date : 9 ORAL JUDGMENT : (Per S.C. Gupte, J.) Heard learned Counsel for the Appellant-Revenue and theRespondent-Assessee. 2.This Tax Appeal challenges an order passed by the IncomeTax Appellate Tribunal, Panaji Bench, Panaji ('ITAT'). Thecontroversy in the appeal concerns treatment of the contribution of₹ 1,38,54,167-00 made by the Respondent-Assessee to GoaInfrastructure Development Co. Ltd., a Government Undertaking, 2 Txa4-18.dtd.09-07-19 during the assessment year 2008-09 for construction of Usgao bridge,which was said to be essential for smooth and efficient running of thebusiness of the Assessee. The question was, whether this expenditureshould be treated as 'capital expenditure' or 'revenue expenditure'.The ITAT, in its impugned order, held the expenditure to be entirelya revenue expenditure. That is challenged in this appeal by theRevenue. 3.The basis of the Revenue's challenge is that the concernedexpenditure has secured a benefit to the Assessee which is not of atransitory nature, but of an enduring nature and the expendituremust accordingly be treated as 'capital expenditure'. It is submittedthat the advantage of enduring nature brings the case within theprinciples laid down in British Insulated and Helsby Cables Ltd.vs. Atherton, 10 TC 155 (HL), which are considered by theSupreme Court in Empire Jute Co. Ltd. vs. Commissioner ofIncome-tax, reported in [1980] 3 Taxman 69 (SC). 4.In the relevant assessment year (i.e. 2008-09), the Assesseecontributed 1,38,54,167-00 as its share of contribution to be paid₹to Goa Infrastructure Development Co. Ltd. for construction of thenew Usgao bridge. The Assessee claimed to have made thiscontribution at the bidding of Government of Goa, who had askedmining companies in and around Usgao to contribute towards 3 Txa4-18.dtd.09-07-19 construction of the bridge since it would be used by them fortransportation of mineral ore. The Assessee claimed this contributionas a revenue expenditure. The Assessing Officer as well as the CIT(Appeals) in the Assessee's appeal did not accept the treatment of thisexpenditure as revenue expenditure; they treated it as capitalexpenditure. The ITAT was of the view that until the new bridgecame into operation, there was a long line of trucks waiting on eitherside of the existing bridge reducing the number of trucks thatcould make trips per day, and that after the new bridge wascommissioned, loaded as well as empty trucks could move inopposite directions, without having to stop or wait for the bridgepassage. The ITAT was of the view that the construction of newUsgao bridge had thus resulted in revenue for the Assessee in terms ofcost per ton transported as well as increase in the quantity of oreexported/sold. The ITAT, accordingly, held that the expenditureincurred by the company as its share for construction of the newbridge could not be termed as capital expenditure, but was entirelyrevenue expenditure. The ITAT relied on the Judgment of theSupreme Court in L.H. Sugar Factory and Oil Mills (P) Ltd. vs.CIT, [1980] 125 ITR 293 (SC) and a Judgment of Madras HighCourt in CIT vs. Coats Viyella India Ltd., [2002] 253 ITR 667(Mad), where a similar contribution for construction of a road tofacilitate the business of the Assessee was held to be revenueexpenditure. The ITAT was of the view that the fact that such 4 Txa4-18.dtd.09-07-19 contribution resulted in a capital asset would not make anydifference, because the Assessee was not the owner of such asset. 5.Learned Counsel for the Revenue relies on a decision ofAllahabad High Court in the case of Raza Buland Sugar co. Ltd.vs. Commissioner of Income-Tax Central, 1980 ITR 817, as wellas the case of Empire Jute Co. Ltd. vs. Commissioner of Income-tax, [1980] 3 Taxman 69 (SC) to support its contention that theexpenditure in the present case was in the nature of capitalexpenditure. 6.In Raza Buland Sugar co. Ltd. (supra),the StateGovernment had introduced a scheme for construction of workmen'sstaff quarters for which the assessee was to lease out its land near itsfactory to the U.P. Housing Board. The Government was tocontribute some amount for construction of the staff quarters forvarious factories and the balance was to be borne by the factoryowners and contractors. These staff quarters were to remain theproperty of U.P. Sugar Power Alcohol Housing Board and they wereto be leased out to the factory owners on agreed terms andconditions. The assessee claimed the amount it had paid towards itscontribution towards the cost of construction of the quarters asrevenue expenditure. The assessee relied on the decision of theSupreme court in Lakshmiji Sugar Mills Co. Pvt. Ltd. vs. CIT, 5 Txa4-18.dtd.09-07-19 [1971] 82 ITR 376, where the Supreme Court, whilst dealing withexpenses incurred for repairs of a road, had held that though theassessee enjoyed an advantage of enduring nature, yet thecontribution was a revenue expense, because it was spent forfacilitating the day-to-day running of the business. The AllahabadHigh Court held that case to be distinguishable as in that case noasset of an enduring nature had come into existence. The HighCourt held that in the case before it, the quarters were freshly builtand were exclusively used by the assessee and though the assessee wasnot the owner, it was entitled to its exclusive use for an unlimitedperiod of time. On this reasoning, the Court held the expenditureto be capital expenditure. The Allahabad High Court decision wasrendered before the Supreme Court gave its ruling in L.H. SugarFactory and Oil Mills (P) Ltd., (supra). In that case, the argumentof the Revenue was on the same lines as what is proposed in thepresent case. The argument was that the newly constructed road,though not belonging to the assessee, brought to the assessee anenduring advantage for the benefit of its business and expenditureincurred by it for such road was, therefore, in the nature of capitalexpenditure. The test laid down by Lord Cave L.C. in BritishInsulated and Helsby Cables Ltd., (supra) was cited by theRevenue before the Supreme Court. The test was to the effect thatwhen an expenditure is made, not only once and for all, but with aview to bringing into existence an asset or an advantage for the 6 Txa4-18.dtd.09-07-19enduring benefit of a trade, there was very good reason (in theabsence of special circumstances leading to an opposite conclusion)for treating such expenditure as properly attributable not to revenue,but to capital. The Supreme Court held that this test, though well-known for distinguishing between the two kinds of expenditure, wasnot of universal application, and, as the parenthetical clause showed,it ought to yield where there were special circumstances leading toa contrary conclusion. The Supreme Court held that it was not everyadvantage of enduring nature acquired by an assessee that brings thecase within the principle laid down in this test. If the advantageconsists merely in facilitating the assessee's business operations orenabling management and conduct of the business to be carried onmore efficiently or more profitably, while leaving the fixed capitaluntouched, the expenditure would be on revenue account, eventhough the advantage may endure for an indefinite future. Theseobservations of the Supreme Court in L.H. Sugar Factory and OilMills (P) Ltd., (supra) completely cover the controversy in thepresent case. 7.As rightly held by the ITAT, in the present case, thecontribution made by the Assessee towards the construction of thenew bridge facilitated the business of the Assessee, enabling its beingcarried on more efficiently or more profitably and yet, at the sametime, the fixed capital of the Assessee was left untouched. In the 7 Txa4-18.dtd.09-07-19 premises, the expenditure was clearly on revenue account and not oncapital account, though it resulted into an advantage of enduringnature for the Assessee. 8. In the case of Empire Jute Co. Ltd. (supra), the assesseehad purchased what were called “loom hours” from four different jutemanufacturing concerns. (There was a working time agreementbetween different jute manufacturers restricting the number ofworking hours per week for which each mill could work its looms.The transferor mills had transferred their working hours to theassessee mill.) The argument of the revenue before the SupremeCourt was that by purchase of loom hours, the assessee had acquireda right to produce more than what it otherwise would have beenentitled to do and this right to produce additional quantity of goodsconstituted addition to, or augmentation of, its profit makingstructure. The Supreme Court did not accept this contention. TheCourt held that what the assessee acquired was not a profit-makingapparatus; there was no enlargement of the permanent structure ofwhich the income would be the produce or fruit. The Court heldthat what the assessee acquired was merely an advantage in the natureof relaxation of restrictions on working hours imposed by theworking time agreement, so that it could operate its profit-earningstructure for a longer number of hours. The Supreme Courtconsidered in this context the test formulated by Lord Clyde in 8 Txa4-18.dtd.09-07-19 8 Txa4-18.dtd.09-07-19 Robert Addic & Sons Collieries Ltd. vs. Inland Revenue, 8 TC 671,namely, whether the expenditure laid out was a part of the process ofprofit-earning or, on the other hand, was capital outlay, i.e. foracquisition of property or rights of permanent character thepossession of which was a condition of carrying on the trade at all.The Supreme Court, applying the test, held that the payment madeby the assessee for purchase of loom hours was expenditure laid outas part of the process of profit earning; what was expended was partof the cost of operating the profit-earning apparatus and was clearlyin the nature of revenue expenditure. It is difficult to see how thiscase assists the Revenue in the present matter. Here, the Assessee, byspending for construction of the new bridge, had not acquired anyproperty or right of permanent character the possession of which wasa condition of carrying on its trade at all. What it thereby achievedwas reduction of the cost of operating its profit-making apparatus. Itwas, thus, in the nature of expenditure as part of the process of profitearning, as explained by the Supreme Court in Empire Jute Co.Ltd. (supra). 9.Accordingly, there is no merit in the Appeal. No substantialquestion of law arises for determination of this Court. The TaxAppeal is, accordingly, dismissed. Nutan D. Sardessai, J. S.C. Gupte, J.