The Commissioner Of Income Tax, Chennai v. M/S.tamil Nadu Tourism Development Corporation Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 19.07.2016 CORAM: THE HONOURABLE MR.JUSTICE S.MANIKUMARandTHE HONOURABLE MR.JUSTICE D.KRISHNAKUMAR The Commissioner of Income Tax,Chennai ... Appellant/AppellantVs. M/s.Tamil Nadu Tourism Development Corporation LtdNo.2 Wallajah RoadChennai - 600 002... Respondent/Respondent Prayer: Tax Case Appeals filed under Section 260A of theIncome Tax Act, 1961, against the orders made in I.T.A.Nos.550and 551/Mds/2010, dated 12.08.2013, against the Order of theCommissioner of Income Tax(A)-III, Chennai dated 20.01.2010made in ITA.No.246/08-09/A-III for the Assessment Year 2008-09, against the Commissioner of Income Tax A-III, Chennaidated 19.01.2010, made in ITA.No.436/07-08/A-III for theAssessment Year 2005-06, against the Order of the AssistantCommissioner of Income Tax, Company Circle III(1), Chennai 35,dated 05.12.2008 made in AAACT3453H/31010-T for the AssessmentYear 2006-07, against the Order of the Assistant Commissionerof Income Tax, Company Circle III(1), Chennai, order dated18.12.2007 made in PAN.No.31010-T/ for theAssessment Year 2005 - 06. For Appellant : Mr.M.Swaminathanin both TCAsSenior Standing Counsel(IT)For Respondent : Mr.M.Vijayaraghavanin both TCAs S.MANIKUMAR, J. COMMON JUDGMENT Tax Case Appeals have been filed against the commonorders, made in I.T.A.Nos.550 & 551/Mds/2010 and Cross-Appeals. 2. Facts leading to the appeals are that thehttps://hcservices.ecourts.gov.in/hcservices/assessee, M/s.Tamil Nadu Tourism Development Corporation Ltd., filed returns for the assessment year 2005-06 on 31.10.2005and a revised return on 06.06.2006, admitting the total incomeof Rs.2,12,97,601/-. For the assessment year 2006-07, theassessee filed returns on 27.11.2006, admitting the totalincome of Rs.2,05,70,640/-. Returns were processed underSection 143(1), selected for scrutiny and notice under Section143(2) was issued. 3. After enquiry, assessment was completed and videorder, dated 05.12.2012, the following additions were made tothe income of the assessee for the assessment year 2005-06: Similar order was passed for the assessment year 2006-07 andthe assessing officer has made the following additions: 4. Being aggrieved by the same, Tamil Nadu TourismDevelopment Corporation has filed two appeals inI.T.A.Nos.436/07-08 and 246/08-09 respectively.I.T.A.No.436/07-08 was partly allowed and I.T.A.No.246/08-09was allowed, on all the grounds raised in the appeal. 5. Aggrieved by the order of C.I.T.Appeal No.436/07-08 dated 19.01.2010 for the assessment year 2005-2006 andC.I.T.(Appeal) No.246/08-09 dated 20.01.2010, for theassessment year 2006-2007, the Commissioner of Income Tax,Chennai filed ITA Nos.550 and 551/2010 respectively. CrossObjection Nos.29 and 30/Mds/2010 have been filed by theassessee. 6. As the issues involved in all the appeals werehttps://hcservices.ecourts.gov.in/hcservices/same, but for the difference in the assessment years, the Income Tax Appellate Tribunal, by common order dated12.08.2013 in I.T.A.Nos.550 and 551/Mds/2010 filed by theCommissioner of Income Tax, Chennai and Cross Objection Nos.29and 30/Mds/2010, dismissed the appeals filed by the Revenue.Cross objections filed by the assessee were also dismissed. 7. Aggrieved by the order in I.T.A No.550/Mds/2010for the Assessment year 2005-2006, Tax Case (Appeal)No.321/2016 has been filed on the following substantialquestions of law. 1. Whether in the facts and circumstancesof the case, the Tribunal was right in holding thatthe expenses incurred by the assessee inmaintaining the Thiruvalluvar statue is revenue innature on the ground that the statue did not belongto the assessee? Income Tax Appellate Tribunal, by common order dated12.08.2013 in I.T.A.Nos.550 and 551/Mds/2010 filed by theCommissioner of Income Tax, Chennai and Cross Objection Nos.29and 30/Mds/2010, dismissed the appeals filed by the Revenue.Cross objections filed by the assessee were also dismissed. 7. Aggrieved by the order in I.T.A No.550/Mds/2010for the Assessment year 2005-2006, Tax Case (Appeal)No.321/2016 has been filed on the following substantialquestions of law. 1. Whether in the facts and circumstancesof the case, the Tribunal was right in holding thatthe expenses incurred by the assessee inmaintaining the Thiruvalluvar statue is revenue innature on the ground that the statue did not belongto the assessee? 2. Has not the Tribunal erred inoverlooking the fact that the expenses incurred forproviding protective coating to the statue withpoly silicon has extended the 'life' of the statueand therefore the expenses resulting in anadvantage of enduring benefit ought to have beenclassified as capital expenditure?3. Whether in the facts and circumstancesof the case, the Tribunal was right in holding thatthe receipt of grants by the assess from theCentral Government capital in nature? 4. Has not the Tribunal erred inoverlooking the fact that the grants received bythe assessee was for improving existing facilitiesand therefore the proposed expenditure for whichmoney was received was only revenue in nature? 5. Whether the Tribunal is right inignoring the fact that the money received by theassessee for meeting revenue expenditure has notbeen utilised by the assessee and therefore thereceipt by the assessee has to be treated as arevenue receipt only? 8. Aggrieved by the order in I.T.A No.551/Mds/2010for the Assessment year 2006-2007, Tax Case (Appeal)No.322/2016 has been filed on the following substantialquestions of law, 1. Whether in the facts and circumstancesof the case, the Tribunal was right in holding thatthe expenses incurred by the assessee inmaintaining the Thiruvalluvar statue is revenue innature on the ground that the statue did not belongto the assessee? 2. Has not the Tribunal erred inhttps://hcservices.ecourts.gov.in/hcservices/overlooking the fact that the expenses incurred for providing protective coating to the statue withpoly silicon has extended the 'life' of the statueand therefore the expenses resulting in anadvantage of enduring benefit ought to have beenclassified as capital expenditure? 3. Whether in the facts and circumstancesof the case, the Tribunal was right in holding thatthe receipt of grants by the assess from theCentral Government capital in nature? 4. Is not the Tribunal wrong in applyingthe facts of the AY 2005-06 to the AY 2006-07 andholding the receipt of grants by the assessee ascapital in nature when in respect of the AY 2006-07, the grants were received by the assessee wasfor improving its existing infrastructure and notfor bringing into existence any new asset? 5. Has not the Tribunal erred inoverlooking the fact that the grants received bythe assessee was for improving existing facilitiesand therefore the proposed expenditure for whichmoney was received was only revenue in nature? 6. Whether the Tribunal is right inignoring the fact that the money received by theassessee for meeting revenue expenditure has notbeen utilised by the assessee and therefore thereceipt by the assessee has to be treated as arevenue receipt only? Both Tax Case Appeals have been filed in respect of an issuerelating to the expenses incurred in maintaining theThiruvalluvar statue and grants received from the CentralGovernment. 5. Has not the Tribunal erred inoverlooking the fact that the grants received bythe assessee was for improving existing facilitiesand therefore the proposed expenditure for whichmoney was received was only revenue in nature? 6. Whether the Tribunal is right inignoring the fact that the money received by theassessee for meeting revenue expenditure has notbeen utilised by the assessee and therefore thereceipt by the assessee has to be treated as arevenue receipt only? Both Tax Case Appeals have been filed in respect of an issuerelating to the expenses incurred in maintaining theThiruvalluvar statue and grants received from the CentralGovernment. 9. Inviting the attention of this court to thefinding of the Assessing Officer on the expenses incurred inmaintaining the Thiruvalluvar statue, Mr.M.Swaminathan,learned standing counsel for Income Tax Department submittedthat the Tribunal erred in holding that the expenses incurredby the assessee, Tamil Nadu Tourism Development CorporationLimited, Chennai, to maintain Thiruvalluvar statue atKanyakumari, is revenue in nature, as the assessee has beendirected by the State Government to maintain the same. Hefurther submitted that the Tribunal went wrong in holding thatthe expenses incurred by the assessee in the nature ofsecurity charges, electricity charges, establishment chargesand expenses for providing protective coating with polysilicon to the statue, as revenue in nature, on the groundthat the statute of Thiruvalluvar is a public property, andnot the property of the assessee Corporation. According tohim, the only issue to be decided by the Tribunal was whetherthe expenses for maintaining Thiruvalluvar statue is, revenuehttps://hcservices.ecourts.gov.in/hcservices/or capital in nature, and that the Tribunal was not called upon to decide as to whether the statue itself was owned bythe assessee or not. 10. Mr.M.Swaminathan, learned standing counsel forthe appellant further submitted that the Tribunal failed toconsider that the expenses incurred for coating the statuewith poly silicon was capital in nature, as it helped inenduring a long term advantage to the statue, so that thestatue is not adversely affected by the salty sea water. 11. As regards the substantial question of lawregarding the receipt of grants by the assessee held ascapital in nature, learned Standing Counsel for Income TaxDepartment, by drawing the attention of this court to thefinding of the Assessing Officer, submitted that the Tribunalerred in holding that the grants given by the Government ofIndia, to the assessee were capital grants for developinginfrastructural facilities, at tourist destinations andaccording to him reading of the sanction orders would showthat the money was invested only for meeting the existinginfrastructure and therefore, the receipt was revenue innature. He also added that the Tribunal failed to note thatthough money was received by the assessee for meeting itsrevenue expenditure for improving the existing facilities, andthe Tribunal has failed to consider that the assessee had notutilised the same, and therefore, has to be treated only as arevenue receipt and added to the income of the year ofreceipt. 12. Inviting the attention of this court to theobservation of the Tribunal that insofar as the grants givenby the Government of India is concerned, the proposed projectswere dropped and that the funds were directed to be kept astrust so that the same can be spent for other alternativeprojects as directed by the Government from time to time andin the above said circumstances, when the Tribunal itselfexpressed an opinion that it was not in a position to give aclear finding as to how the grants were expended, learnedsenior standing counsel for Income Tax department prayed thatthe matter be remitted to the original authority for freshadjudication. 13. Per contra, Mr.M.Vijayaraghavan, learned counselfor the respondent submitted that M/s.Tamil Nadu TourismDevelopment Corporation Limited, Chennai was formed for thepurpose of improving tourism in the State of Tamil Nadu. Ithas various activities, having hotels, running buses andtaxies, for the purpose of tourism. One of the important spotsfor tourism is Kanyakumari and major attraction therein is thestatue of Thiruvalluvar in the middle of the sea. He furthersubmitted that, tourists, who visit Kanyakumari, invariablyvisit the statue of Thiruvalluvar in the middle of sea. Inhttps://hcservices.ecourts.gov.in/hcservices/ 2002, maintenance of the statue was handed over to M/s.TamilNadu Tourism Development Corporation Limited, Chennai. To fundthe maintenance charges, Poompuhar Shipping Corporation hasbeen collecting Rs.5/- from ferry charges. Poompuhar ShippingCorporation had already collected Rs.1.00 Crore towardsmaintenance charges and the same was handed over to theassessee. 14. Mr.M.Vijayaraghavan, learned counsel for therespondent further submitted that the respondent/assessee, forthe assessment year 2005 - 2006 in the Profit and Lossaccount, the assessee claimed Rs.45,34,350/- and for theassessment year 2006 - 2007, the assessee claimed the sameamount towards recurring expenditure like, security charges,electricity charges, establishment charges and providingprotective coating with poly silicon to Thiruvalluvar statue,at the rate of Rs.34,00,000/-. He further submitted that theassessee is not the owner of the statue. The assessee is onlymaintaining the statue in Kanyakumari District on thedirections of the State Government and thus the assessee earnsonly a small income from the ferry charges of PoompuharShipping Corporation. As the assessee is not the owner of theasset and inasmuch as, maintenance is done, with the source ofthe income earned at the rate of Rs.5/- from ferry charges,repairs and maintenance done are only on revenue field.Therefore, the expenses incurred for maintaining the statue bythe assessee cannot be said to be a capital expenditure. Healso added that assessee has also incurred similar expenditurefor all the years prior to the assessment year 2005 - 2006 and2006 - 2007 respectively, and therefore, the expenditure hasto be held only, as revenue in nature. 15. Placing reliance on the judgments in L.H.SugarFactory & Oil Mills (P) Ltd. vs. Commissioner of Income Taxreported in 125 ITR 293 SC, C.I.T. vs. Coats Viyella India Ltdreported in 253 ITR 667 Mad, C.I.T. vs. T.V.Sundaram Iyengar &Sons (P) Ltd reported in 186 ITR 276 SC, C.I.T. vs. Chemicalsand Plastics Ltd reported 292 ITR 0115 Mad and CIT vs. SawPipes Ltd reported in 300 ITR 35 (Del), Mr.M.Vijayaraghavan,learned counsel for the respondent submitted that whenexpenditure was incurred on the asset not owned by theassessees, then the same has to be construed only as a revenueexpenditure. At this juncture, he reiterated that the statueis not owned by M/s.Tamil Nadu Tourism Development CorporationLimited, Chennai/respondent/ assessee. 15. Placing reliance on the judgments in L.H.SugarFactory & Oil Mills (P) Ltd. vs. Commissioner of Income Taxreported in 125 ITR 293 SC, C.I.T. vs. Coats Viyella India Ltdreported in 253 ITR 667 Mad, C.I.T. vs. T.V.Sundaram Iyengar &Sons (P) Ltd reported in 186 ITR 276 SC, C.I.T. vs. Chemicalsand Plastics Ltd reported 292 ITR 0115 Mad and CIT vs. SawPipes Ltd reported in 300 ITR 35 (Del), Mr.M.Vijayaraghavan,learned counsel for the respondent submitted that whenexpenditure was incurred on the asset not owned by theassessees, then the same has to be construed only as a revenueexpenditure. At this juncture, he reiterated that the statueis not owned by M/s.Tamil Nadu Tourism Development CorporationLimited, Chennai/respondent/ assessee. 16. Learned counsel for the respondent submittedthat both the Appellate Authority and the Tribunal,concurrently and rightly, both on facts and law, held that thedepartment was not correct in disallowing the claim of theassessee, according to him, the well considered orders statedhttps://hcservices.ecourts.gov.in/hcservices/supra, cannot be termed as perverse, warranting interference. 17.On the substantial question of law relating togovernment grant, Mr.M.Vijayaraghavan, learned counsel for therespondent/assessee submitted that during the assessment year2005 - 2006, the assessee received Rs.478.70 Lakhs andRs.188.97 Lakhs, for the assessment year 2006-2007. It is thefurther submission of the learned counsel for therespondent/assessee that Government grants are only forcarrying out specific projects. Expenditure that may beincurred on such projects are estimated and based on suchestimation, Government gives grant for implementing thespecified projects. If for any reason, the project is notcarried out, then the respective Government will issueinstructions to deal with the grant/money, given to Tamil NaduTourism Development Corporation. He also submitted thatnormally, Central Government may grant permission to TamilNadu Tourism Development Corporation, to utilise the fund forother projects approved by the Central Government. In the caseof State Government, if the grant cannot be used for thespecified projects, for which they were given, it has to betreated as repayable loan converted as equity in Tamil NaduTourism Development Corporation. 18. In this context, he invited the attention of thiscourt to the letter dated 04.12.2008 of the Government ofIndia, Ministry of Tourism, wherein, the Central Governmenthave given grant for development in Kolli Hills in NamakkalDistrict, a tourist destination, at an estimated cost wasRs.327.98 lakhs. He also submitted that in the said letterdated 04.12.2008, it has been clearly stated that the StateGovernment shall utilise the amount only for the projects andin case, the fund cannot be utilised for more than six months,the same should be surrendered to the Central Government.Attention of this court was also invited to clauses 10 and 12of the letter dated 04.12.2008. 18. In this context, he invited the attention of thiscourt to the letter dated 04.12.2008 of the Government ofIndia, Ministry of Tourism, wherein, the Central Governmenthave given grant for development in Kolli Hills in NamakkalDistrict, a tourist destination, at an estimated cost wasRs.327.98 lakhs. He also submitted that in the said letterdated 04.12.2008, it has been clearly stated that the StateGovernment shall utilise the amount only for the projects andin case, the fund cannot be utilised for more than six months,the same should be surrendered to the Central Government.Attention of this court was also invited to clauses 10 and 12of the letter dated 04.12.2008. 19. Learned counsel for the assesse further submittedthat final installment of Central Financial Association willbe released only after the completion of the project, and uponthe receipt of utilisation certificate, completion certificateand management agreement. According to him, grant of theGovernment is coupled with an underlying obligation to spendthe entire amount on the project for which grant has beenreleased. According to him, at the time of grant, it was neverenvisaged that any part of the grant would accrue as income tothe implementing agency like, Tamil Nadu Tourism DevelopmentCorporation Ltd. He added that if at all, it is only aftercompletion of the project and if surplus remains unutilisedand if the Government permits the implementing agency like,Tamil Nadu Tourism Development Corporation to treat thesurplus income, such portion can be treated as income of thehttps://hcservices.ecourts.gov.in/hcservices/Corporation and that too, only for the year, for which the Government has permitted the Corporation to utilise any amountof the project as income. 20. Learned counsel for the respondent further addedthat till the Government issues appropriate orders enablingthe Tourism Development Corporation to retain any portion ofthe grant as its income, the same can be treated as income ofthe Corporation in the year, in which the Government grantspermission. It is also his submission that at the time ofgrant, there is an attendant obligation to utilise the entireamount for the project contemplated by the Government. No partof the same will constitute as income of the Corporation.According to him, merely because the Corporation could notgive particulars as to how the grants were to be utilised inthe future, it does not mean that the grant should be treatedas income of the corporation in the first year only. 21. Learned counsel for the respondent furthersubmitted that during the subject assessment years, theGovernment have not permitted the Corporation to treat any ofthe amount given by it by way of grant, either for the yearearlier, as income of the assessee. He also submitted thatinsofar as Rs.478.70 Lakhs given as grant by the Government ofIndia for the assessment year 2005 - 2006, subsequently, videletter dated 04.12.2008, the Government has directed Rs.476Lakhs to be utilised for other projects, the balance 2.76lakhs has been added as income by the Appellate Authority. Asregards Rs.663.50 Lakhs given by the State Government, thesame has subsequently been converted into equity. 21. Learned counsel for the respondent furthersubmitted that during the subject assessment years, theGovernment have not permitted the Corporation to treat any ofthe amount given by it by way of grant, either for the yearearlier, as income of the assessee. He also submitted thatinsofar as Rs.478.70 Lakhs given as grant by the Government ofIndia for the assessment year 2005 - 2006, subsequently, videletter dated 04.12.2008, the Government has directed Rs.476Lakhs to be utilised for other projects, the balance 2.76lakhs has been added as income by the Appellate Authority. Asregards Rs.663.50 Lakhs given by the State Government, thesame has subsequently been converted into equity. 22. Learned counsel for the assessee further submittedthat as regards the Government of India grant for theassessment year 2006-2007 of Rs.188.97 Lakhs, the entire sumhas been earmarked to be spent on specific projects only andGovernment of India have not permitted any amount out of thegrants and the subject assessment years towards income of theassessee. In the light of the above contentions, learnedcounsel for the assessee submitted that the above said aspectshave been properly adverted to by both the Appellate Authorityand the Tribunal, and thus, the well considered order underchallenge in the present appeals does not warrantintervention. Learned counsel for the assessee submitted thatsubstantial question of law framed in both the appeals have tobe answered against the revenue and prayed for dismissal ofthe appeals. 23. Heard the learned counsel for the parties andperused the materials available on record. 24. In the light of the rival submissions, let usconsider as to how the Assessing Officer, Appellate Authorityhttps://hcservices.ecourts.gov.in/hcservices/and ITAT, have dealt with the issues. As regards the expenses for maintaining Thiruvalluvar statue, the Assessing Officerhas recorded as under: "Assessee in the profit and loss accountclaimed Rs.45,34,350/- for Thiruvalluvar statueexpenses for the previous year relevant to theAssessment Year 2005-06. While discussing with theassessee's representative it was asked why theexpenses claimed for Thiruvalluvar statue cannot bedisallowed as it is in nature of capitalexpenditure. The assessee submitted a written replyletter dated 14.12.2007 stating that " theexpenditure towards Thiruvalluvar statue incurredto the tune of Rs.45,34,350/- for the assessmentyear 2005-06 related to recurring expenditure likesecuritycharges,electricitycharges,establishment charges and providing protectivecoating with poly silicon to the statue (Rs.34.00Lakhs). As the entire expenditure incurred inThiruvalluvar statue was of recurring nature and nocapital expenditure is involved the expenditure maybe allowed. Moreover all expenditure incurredtowards Thiruvalluvar statue are of maintenancenature only as TTDC has been entrusted with thetask of maintaining the Thiruvalluvar statue onlyby virtue of government order and as such TTDC doesnot have any ownership towards the Thiruvalluvarstatue. I have considered the arguments of theassessee, but the contentions are not acceptable.As such there is no income directly derived fromthe statue by the Corporation but is an unrefutablefact that the Thiruvalluvar statue is a capitalasset to the corporation through which a portion ofincome is earned. It is clear from the reply thatthe expenditure is capital in nature as a hugeportion of it was spent for poly silicon coating bywhich the life of the statue can be increased. Thuscannot be allowed as deduction as it is a capitalexpenditure" 25. For the Assessment year 2005 - 2006, theAssessing Officer disallowed the maintenance charges ofRs.34,00,000/-, as capital expenditure. Citing the very samereasons for the Assessment Year 2006 - 2007, the AssessingOfficer disallowed the sum of Rs.45,34,350/-. 25. For the Assessment year 2005 - 2006, theAssessing Officer disallowed the maintenance charges ofRs.34,00,000/-, as capital expenditure. Citing the very samereasons for the Assessment Year 2006 - 2007, the AssessingOfficer disallowed the sum of Rs.45,34,350/-. 26. Letter No.12745/TS2/2000 dated 22.06.2002 of theCommissioner of Tourism Incharge, Chennai addressed to theManaging Director, Tamil Nadu Tourism Development Corporationis extracted here under: From: To DEPARTMENT OF TOURISM V.Ramadoss The Managing DirectorCommissioner of Tourism Tamil Nadu Tourism Development InchargeCorporationTamil Nadu Tourism ComplexChennai 600 002.Chennai 600 009 Letter No.12745/TS2/2000, Dt.22-6-2002Sub: Tourism - Thiruvalluvar Statue Maintenance -Taken over by the TTDC - Regarding. Ref: 1) G.O.Ms.No.260, Information and Tourism (T4) Department, dt.27.11.20002) D.O. Letter No.V2/42556/2001, dt.26.5.2002 ofDistrict Collector,Kanniyakumari addressed to theSecretary to Government, Information and TourismDepartment. 3) From the Secretary to Government D.O.Letter No.33447/T3/2001-02, dt.31.5.2002 addressed to the Commissioner of Tourism4) This Office Proc. No.12745/TS2/2000,Dt.22.6.02 --------- I am to invite your kind attention to the G.O.cited, wherein orders have been issued to take over theadministration of the Thiruvalluvar statue and itssurroundings by the Tourism Department and the maintenanceof the Statue by Public Works Department. The District Collector, Kanniyakumari has sent aproposal for taking over the statue by the TourismDepartment. The request of the District Collector wasexamined in detail and decided to take over the maintenanceof the statue from the State Construction Corporation.Therefore, the Tourist Officer, Kanniyakumari has beenrequested in the reference fourth to take over the statuefrom the Construction Corporation and handed over the sameto the TTDC for future maintenance. In respect of funds for the maintenance ofstatue, I am to inform that Poompuhar Shipping Corporationhas been collecting an amount of Rs.20/- as ticket from thetourists out of which Rs.5/- is meant for the maintenanceof the Thiruvalluvar statue. It is learnt that an amount ofhttps://hcservices.ecourts.gov.in/hcservices/Rupees One Crore so far collected on behalf of the Thiruvalluvar statue is available with the ShippingCorporation. As the developmental works have to be carriedout immediately, I am to request that the PoompuharShipping Corporation may be requested to pay the amount toTTDC immediately. This department has also requested theManaging Director, Poompuhar Shipping Corporationseparately to hand over the amount to the TTDC. I am therefore to request you to issueinstructions to the official concerned to take over themaintenance of statue from the Tourist Officer,Kanniyakumari. Early action may also be taken to collectthe amount from Poompuhar Shipping Corporation.This may be treated as 'Most Urgent'.Sd/- V.Ramadoss, Commissioner of Tourism InchargeCopy to:The District Collector, Kanniyakumari at NagercoilThe Tourist Officer, KanniyakumariThe Secretary to Government,Information and Tourism Department,Fort St. George, Chennai - 600 009. I am therefore to request you to issueinstructions to the official concerned to take over themaintenance of statue from the Tourist Officer,Kanniyakumari. Early action may also be taken to collectthe amount from Poompuhar Shipping Corporation.This may be treated as 'Most Urgent'.Sd/- V.Ramadoss, Commissioner of Tourism InchargeCopy to:The District Collector, Kanniyakumari at NagercoilThe Tourist Officer, KanniyakumariThe Secretary to Government,Information and Tourism Department,Fort St. George, Chennai - 600 009. A reading of the above said letter fortifies the contention ofthe respondent/assessee that maintenance of Thiruvalluvarstatue has been entrusted to Tamil Nadu Tourism DevelopmentCorporation Ltd, from the year 2002 onwards and formaintenance of the statue, Poompuhar Shipping Corporation, hasbeen collecting a sum of Rs.20/- as ticket fee from thetourists, and Rs.5/- has been earmarked for the maintenance ofThiruvalluvar statue by Tamil Nadu Tourism DevelopmentCorporation. As per the letter dated 22.06.2002, a sum ofRs.1.00 Crore collected towards maintenance, was alsoavailable with Poompuhar Shipping corporation and asdevelopmental work was to be carried out, Commissioner ofTourism (Incharge) vide letter dated 22.06.2002 has requestedthe Managing Director, Poompuhar Shipping Corporation to handover the amount to Tamil Nadu Tourism Development CorporationLimited. 27. As rightly contended by the learned counsel forthe respondent, Thiruvalluvar Statue is not owned by the TamilNadu Tourism Development Corporation. It is owned byGovernment of Tamil Nadu. Statue has been constructed by theState Construction Corporation. From out of the contributionof Rs.5/- towards maintenance of statue, out of Rs.20/-, ashttps://hcservices.ecourts.gov.in/hcservices/ticket fee collected from the tourists, by Poompuhar Shipping Corporation Ltd, the respondent has to meet the maintenanceexpenses and thus, they have submitted returns for theassessment year 2005 - 2006 and 2006 - 2007 respectively,stating that a sum of Rs.45,34,350/- has been incurred everyyear, towards security charges, electricity charges,establishment charges and providing protective coating withpoly silicon to the Thiruvalluvar statue. The source of incomefor meeting the expenditure is from Poompuhar ShippingCorporation Limited and not from the capital asset of theTamil Nadu Tourism Development Corporation Limited. 28.OneofthecontentionsraisedbyMr.M.Swaminathan, learned counsel for the revenue is that theTribunal went wrong in its conclusion and owing to the factthat the expenditure was not made once for all, but with aview to bring advantage of enduring benefit to the statue andkeep attracting tourists, which is the business of theassessee corporation and therefore, the expenses incurred onthe statue, results in extending the life of the statue andtherefore capital in nature. 29. On the above submission, let us consider some ofthe cases relied on by Mr.M.Vijayaraghavan, learned counselfor the respondent. 30. In L.H.Sugar Factory & Oil Mills (P) Ltd. vs.Commissioner of Income Tax reported in (1980) 125 ITR 0293,assessee therein, contributed a sum for meeting the cost ofconstruction of roads in the area around the factory.Construction of roads around the factory, facilitatedtransportation of sugar cane. On the aspect, as to whether theassessee therein has acquired any asset of an enduring nature,the Hon'ble Supreme Court held in the negative. The Apex Courtfurther held that no doubt the advantage secured for thebusiness existing was of long duration inasmuch as it wouldlast so long as roads continued to be in motorable condition,but it was not an advantage in the capital filed, because notangible or intangible asset was acquired by the assessee norwas there any addition to or expansion of the profit-makingapparatus of the assessee. 31. In respect of enduring benefit, it is alsoworthwhile to extract the judgment of the Hon'ble Apex Courtin Empire Jute Co. Ltd. vs. CIT reported in (1980) 124 ITR 1(SC), as follows: "There may be cases where expenditure, evenif incurred for obtaining an advantage of enduringbenefit, may, none the less, be on revenue accountand the test of enduring nature acquired by anassessee that brings the case within the principlelaid down in this test. What is material to considerhttps://hcservices.ecourts.gov.in/hcservices/is the nature of the advantage in a commercial sense and it is only where the advantage is in the capitalfield that the expenditure would be disallowable onan application of this test. If the advantageconsists merely in facilitating the assessee'strading operations or enabling the management andconduct of the assessee's business to be carried onmore efficiently or more profitably while leaving thefixed capital untouched, the expenditure would be onrevenue account, even though the advantage may endurefor an indefinite future." 32. In Commissioner of Income Tax vs. Coats ViyellaIndia Ltd. reported in (2002) 253 ITR 0667, contribution wasmade by the assessee for building a new project, essential toprovide access to the assessee's factory. Following L.H.SugarFactory's case, a Hon'ble Division Bench of this court, heldthat the bridge is not owned by the assessee. It is built bythe Government and therefore, the assessee will not acquireany right or ownership over the bridge in the short term or inthe long term or in the long run by reason of thecontribution. The Hon'ble Division Bench rejected thecontention of the revenue to treat the expenditure as capital.Similar is the view in Commissioner of Income Tax vs.T.V.Sundaram Iyengar & Sons (P) Ltd. reported in (1990) 186ITR 0276 the contribution for construction of houses foremployees under the subsidised interest scheme was held asrevenue expenditure. 33. In Commissioner of Income Tax vs. Chemicals &Plastics India Ltd. reported in (2007) 292 ITR 0115,contention of the revenue was "whether on the facts andcircumstances of the case, the Tribunal was right in holdingthat Rs.1.5 Lakhs paid towards the construction of thebuilding to the Madras Chamber of Commerce is allowable asbusiness income? A Division Bench of this court held that thecontribution to construction of a building to the Chamber ofCommerce was a revenue expenditure. 34. On the aspect of enduring benefit, it is worthwhileto consider the observations of the Hon'ble Supreme Court inK.T.M.T.M.Abdul Kayoom & Anr. vs. CIT reported in (1962) 44ITR 689 (SC) as hereunder:" ......what is decisive is the nature ofbusiness, the nature of the expenditure, the natureof the right acquired, and their relation inter se,and this is the only key to resolve the issue inthe light of the general principles, which arefollowed in such cases." (Emphasis supplied) 35. In CIT vs. Ashok Leyland Ltd. reported in (1969) 72https://hcservices.ecourts.gov.in/hcservices/ITR 143 (Mad) confirmed by the Hon'ble Supreme Court in CIT vs. Ashok Leyland Ltd reported in (1972) 86 ITR 549 (SC), itis held as follows: 34. On the aspect of enduring benefit, it is worthwhileto consider the observations of the Hon'ble Supreme Court inK.T.M.T.M.Abdul Kayoom & Anr. vs. CIT reported in (1962) 44ITR 689 (SC) as hereunder:" ......what is decisive is the nature ofbusiness, the nature of the expenditure, the natureof the right acquired, and their relation inter se,and this is the only key to resolve the issue inthe light of the general principles, which arefollowed in such cases." (Emphasis supplied) 35. In CIT vs. Ashok Leyland Ltd. reported in (1969) 72https://hcservices.ecourts.gov.in/hcservices/ITR 143 (Mad) confirmed by the Hon'ble Supreme Court in CIT vs. Ashok Leyland Ltd reported in (1972) 86 ITR 549 (SC), itis held as follows: " The facts of each case, the attendingcircumstances revolving round the expenditure, theaim, object and purpose of the same, their impact onthe assessee, particularly in matters relating tothe future of the assessee's trade and business,whether it could be sustained on ordinary canons ofcommercial expediency simpliciter, whether it is astep in aid of future expansion or prolongation oflife of an existing business, whether it is tosecure an enduring benefit, whether the expenditureconstitutes conceivable nucleus to form thefoundation for the posterior profit earning, whetherthe expenditure could be viewed as an integral partof the conduct of the business and to avoid theinroads and incursions into its concrete present andpotential future, are all some of the main instanceswhich have a bearing on the decision, whether in agiven case, the expenditure is capital or chargeableto Revenue. On the whole, an objective applicationof the judicial mind to the facts of each case isnecessary." (Emphasis supplied) 36. In Commissioner of Income Tax vs. Saw Pipes Ltd.reported in (2008) 300 ITR 0035, on the facts andcircumstances of the case, a Hon'ble Division Bench of theDelhi High Court observed that the admitted position is thatthe service lines did not belong to the assessee, but belongedto MSEB and were laid, so as to enable the assessee to conductits business more efficiently, which may perhaps be anenduring advantage, but intended to enable the assessee tocarry on its business more efficiently and profitably leavingthe fixed capital untouched. It is correct that the assesseehad spent an amount of about 52 lakhs towards laying ofservice lines but the cables did not belong to the assess butbelonged to MSEB and, therefore the benefit that the assesseegot was of a commercial nature and a business advantage.Consequently, the expenditure incurred by the assessee shouldbe treated as a revenue expenditure." 37. Now let us consider as to how the Commissioner ofIncome Tax (Appeals) has adverted to the above said aspect.The Commissioner of Income Tax (Appeals)-III at paragraphNo.5.2 assessed as follows:" 5.2.I have carefully consideredthe facts of the case and the submissions of theld. AR. The appellant is maintaining theThiruvalluvar statue in Kanyakumari based ondirection from State Government of Tamilnadu.https://hcservices.ecourts.gov.in/hcservices/Kanykumari is also one of the major tourist spots attracting large number of tourists and manypeople visit Thiruvalluvar statue located in thesea. As such, the statue promotes tourism in asignificant way and is very much in line with theobjectives of the appellant as a promoter oftourism in the State of Tamilnadu. The appellantis also not the owner of the statue nor the landnor the other structures on which the statue isstanding surrounded. The appellant also earnssmall income from the ferry charges of PoompuharShipping Corporation. The appellant has alsoincurred similar expenditure in the subsequentyear. Therefore, the expenditure of Rs.45,34,350/-is held to be revenue in nature and allowable asbusiness expenditure. Hence, the AO is directed todelete the addition of Rs.45,34,350/-." attracting large number of tourists and manypeople visit Thiruvalluvar statue located in thesea. As such, the statue promotes tourism in asignificant way and is very much in line with theobjectives of the appellant as a promoter oftourism in the State of Tamilnadu. The appellantis also not the owner of the statue nor the landnor the other structures on which the statue isstanding surrounded. The appellant also earnssmall income from the ferry charges of PoompuharShipping Corporation. The appellant has alsoincurred similar expenditure in the subsequentyear. Therefore, the expenditure of Rs.45,34,350/-is held to be revenue in nature and allowable asbusiness expenditure. Hence, the AO is directed todelete the addition of Rs.45,34,350/-." Setting out the same reasons, for the assessment year 2006 -2007, the Commissioner of Income Tax (Appeals) held that theAssessing Officer should have allowed depreciation on theincome incurred on Thiruvalluvar statue. 38. Considering the case of the assessee that the mainobject is to develop and carry on tourism in the State ofTamil Nadu and therefore, in the fitness of things theassessee Corporation was directed by the Government of TamilNadu to properly maintain the Thiruvalluvar statue and whenthe asset being, fully owned Government of Tamil NaduUndertaking is bound by the orders of the Government, and whenthe business of the Corporation was to develop tourism, videCommon Order dated 12.08.2013 in ITA Nos.550 and 551/Mds/2010,the Income Tax Tribunal, held that as the expenditure incurredby the assessee for the purpose of maintenance of the statueis recurring in nature and the same is only a revenueexpenditure. The Tribunal further held that it has to be seenthat the statue Thiruvalluvar is a public property and not theproperty of the assessee corporation. Therefore, under nostretch of imagination, expenditure can be treated as capital,and so saying the Tribunal has concurred with the orders ofthe Commissioner of Income Tax (Appeals) and accordingly,rejected the contentions of the revenue. 39. Benefit of enduring nature is not the sole orexclusive test to decide, whether a particular expenditure isa capital or revenue. In Empire Jute Co. Ltd. vs. CIT reportedin (1980) 124 ITR 1 (SC),, the Hon'ble Apex Court held thatwhen expenditure is directly related to the expansion ofcapital base of the company, it will be capital in nature,although incidentally that would help in the business of thecompany and may help in profit making. If the expenditureincurred is only to help the business of the company and alsohttps://hcservices.ecourts.gov.in/hcservices/to help in the profit making, without affecting the capital base of the company, the expenditure will have to be allowedas revenue expenditure. As observed by the Apex Court inEmpire Jute Co. Ltd.'s case (cited supra), it is not everyadvantage of enduring benefit acquired by an assessee amountsto capital expenditure. What is the material to be consideredis the nature of advantage, in a commercial sense and it isonly where the advantage is in the capital field, then theexpenditure would be capital. If the advantage consists merelyin facilitating the assessee's trading operations or enablingthe management and conduct of the business of assessees, tobe carried on, leaving the capital untouched, then theexpenditure should be treated as revenue in nature, eventhough there may be an enduring advantage. On the aspect ofenduring benefit, let us consider some of the decisions, (i) In Bikaner Gypsums Ltd., v. CIT reported in[1991] 187 ITR 39 = [1999] 53 Taxman 279, the Hon'ble SupremeCourt held that, (i) In Bikaner Gypsums Ltd., v. CIT reported in[1991] 187 ITR 39 = [1999] 53 Taxman 279, the Hon'ble SupremeCourt held that, “where the assessee has an existingright to carry on a business, any expenditure madeby it during the course of business for the purposeof removal of any restriction or obstruction ordisability would be on revenue account, providedthe expenditure does not acquire any capital asset.Payments made for removal of restriction,obstruction or disability may result in acquiringbenefits to the business, but that by itself wouldnot acquire any capital asset.” (ii) In Royal Calcutta Turf Club v. CITreported in [1991] 188 ITR 352 = 57 Taxman 185, it has beenheld by the Calcutta High Court as under :--"The true test of an expenditure laidout wholly and exclusively for the purposes of tradeor business is that it is incurred by the assesseeas incidental to his trade for the purposes ofkeeping the trade going and of making it pay and notin any capacity other than that of a trader. Thequestion whether a particular expenditure is arevenue expenditure incurred for the purposes of thebusiness must be determined on a consideration ofall the facts and circumstances and by theapplication of the principle of commercial trading.The question must be viewed in the larger context ofbusiness necessity or expediency. If the outgoing orexpenditure is so related to the carrying on, orconduct of, the business that it may be regarded asan integral part of the profit-earning process andnot for acquisition of an asset or a right of apermanent character the possession of which is acondition for the carrying on of the business, thehttps://hcservices.ecourts.gov.in/hcservices/expenditure should be regarded as a revenue expenditure incurred wholly and exclusively for thepurposes of the business." (iii) In CIT v. Cominco Binani Zinc Ltd.,reported in [1993] 204 ITR 56, the Calcutta High Court heldthat,