2008 (8) TMI 846 - HC - VAT and Sales Tax

New unit - Whether the investment made in obtaining the know-how is included in the phrase fixed capital investment as defined therein? Held that - The proposition as propounded by the learned senior counsel that the expenses incurred for obtaining the know-how are included as are necessary for establishment or running the factory under Explanation (4) of section 4A of the Act, is not correct. The contention of the learned senior counsel for the applicant is that this court should record a finding as to whether more than 250 workers were working on the relevant date or not. He submits that relevant documents have been annexed along with the revision as annexure 7, etc. The said plea is devoid of substance and cannot be accepted. A finding has to be recorded with regard to the number of workers and investments under the various heads as indicated in the Tribunal s order by the authority concerned, first. The said exercise cannot be undertaken by this court in the revision under section 11 of the U. P. Trade Tax Act. It is neither desirable nor possible. Revision dismissed.

Issues Involved:
1. Inclusion of "know-how" in "fixed capital investment."
2. Disallowance of fixed capital investment for car parking.
3. Investment in providing a canteen to workers.

Detailed Analysis:

1. Inclusion of "know-how" in "fixed capital investment":

The primary dispute in this case revolves around the interpretation of "fixed capital investment" as defined in Explanation (4)(a)(v) to section 4A of the U.P. Trade Tax Act. The applicant contended that the price or value of "know-how" should be included in "fixed capital investment." However, both the Divisional Level Committee and the Tribunal rejected this contention. The applicant argued that the investment in know-how is essential for the establishment or running of the factory, citing the Supreme Court decision in Scientific Engineering House (P) Ltd. v. Commissioner of Income-tax [1986] 157 ITR 86.

The court, however, disagreed, noting that the cited case was decided under the Income-tax Act and had no bearing on the present issue. The court referred to the Supreme Court's decision in Commissioner of Trade Tax, U.P. v. Kajaria Ceramics Ltd. [2005] 141 STC 406, which clarified that the definition of "fixed capital investment" in Explanation (4) to section 4A is exhaustive and only includes specific items like land, building, plant, machinery, etc. Therefore, the investment in know-how does not fall within this definition.

2. Disallowance of fixed capital investment for car parking:

The applicant also contested the disallowance of Rs. 12,60,000 invested in providing car parking for engineers and workers. Both the Divisional Level Committee and the Tribunal rejected this claim, stating that section 4A of the Act does not include such an investment under the head of fixed capital investment. The court upheld this view, emphasizing that the provision for car parking is not statutorily required under any specific statute. Therefore, the investment in car parking cannot be considered as part of the fixed capital investment.

3. Investment in providing a canteen to workers:

The applicant claimed an investment of Rs. 2,16,09,000 for providing a canteen to workers, arguing that it is mandatory under section 46 of the Factories Act to provide a canteen if there are more than 250 workers. The Tribunal accepted this argument in principle but found the claimed amount to be on the higher side. Consequently, the Tribunal remanded the matter for reconsideration, instructing the concerned authority to examine the expenditure under various heads and verify if more than 250 workers were actually employed.

The applicant requested the court to record a finding on the number of workers, but the court declined, stating that such findings should first be recorded by the concerned authority. The court emphasized that it is neither desirable nor possible to undertake this exercise in the revision under section 11 of the U.P. Trade Tax Act.

Conclusion:

The court dismissed the revision, finding no merit in the applicant's arguments. The court upheld the Tribunal's decisions on all three issues, reiterating that the definition of "fixed capital investment" is exhaustive and does not include the price or value of know-how, investments in car parking, or unverified high expenditures on canteen facilities.

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