9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (5) TMI 1628 - HC - Income TaxNature of expenditure - Treatment to payment of interest - revenue or capital expenditure - Held that - ITAT was right and justified in treating the payment of interest as revenue expenditure even when the capital borrowed was used for purpose of capital assets. Liabilities under Section 41 - Held that - The issue is squarely covered by the decision of Supreme Court in the case of Commissioner of Income Tax Vs. Sugauli Sugar Works (P) LTD 1999 (2) TMI 5 - SUPREME COURT as held Just because an assessee makes an entry in his books of account unilaterally he cannot get rid of his liability. The question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee s case alone but it is a matter which has to be decided only if the creditor is before the concerned authority - mere entry in the books of account of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Apart from that that will not by itself confer any benefit on the debtor as contemplated by the section. Payment of interest used for purchased of capital assets - Held that - The issue is squarely covered by the decision of Supreme Court in the case of Empire Jute Co. LTD. Vs. Commissioner of Income Tax 1980 (5) TMI 1 - SUPREME COURT wherein held if payment has to be made for securing additional power every week such payment would also be part of the cost of operating the profit making structure and hence in the nature of revenue expenditure even though the effect of acquiring additional power would be to augment the productivity of the profit-making structure. On the same analogy payment made for purchase of loom hours which would enable the assessee to operate the profit-making structure for a longer number of hours than those permitted under the working time agreement would also be part of the cost of performing the income earning operations and hence revenue in character. Pre-operative expenses - Held that - The issue in the case of Commissioner Income Tax Vs. Smt. Jyoti Devi 2008 (7) TMI 954 - RAJASTHAN HIGH COURT - Appeal decided in favour of assessee.
Issues Involved:
1. Incentive received on sugar quota 2. Issues regarding the unilateral write-off of liabilities (Section 41(1) of the Income Tax Act, 1961) 3. Payment of interest used for the purchase of capital assets 4. Pre-operative expenses 5. Labour welfare expenses 6. Depreciation on vehicle Detailed Analysis: Issue 1: Incentive Received on Sugar Quota The Tribunal observed that the incentive received by the assessee under the sugar quota scheme was to make sugar projects viable and was meant for repayment of loans, thus it should not be treated as part of the income. The Tribunal upheld the first appellate order which cited various case laws, including CIT Vs. Bijali Cotton Mills P. Ltd. and CIT Vs. V.P.J. Chemicals, supporting the view that such incentives are capital receipts. The Tribunal's decision was aligned with the Supreme Court's ruling in CIT Vs. Ponni Sugars & Chemicals Ltd., which held that incentives meant to meet capital costs should be treated as capital receipts. Therefore, the Tribunal's decision to delete the addition made by the AO was upheld, and no interference was deemed necessary. Issue 2: Unilateral Write-off of Liabilities (Section 41(1) of the Income Tax Act, 1961) The Tribunal's decision was supported by the Supreme Court's ruling in Commissioner of Income Tax Vs. Sugauli Sugar Works (P) LTD, which stated that mere unilateral entries by the assessee in their accounts do not constitute remission or cessation of liability under Section 41(1). The Tribunal also referred to Chief Commissioner of Income Tax Vs. Kesaria Tea Co. LTD, which emphasized that an assessee's unilateral action of writing off a liability does not mean the liability has ceased legally. Consequently, the Tribunal's view that the liabilities written back by the assessee did not warrant inclusion in the total income was upheld. Issue 3: Payment of Interest Used for Purchase of Capital Assets The Tribunal's decision was in line with the Supreme Court's ruling in Empire Jute Co. LTD. Vs. Commissioner of Income Tax, which clarified that the nature of expenditure (capital or revenue) should be determined based on the nature of the transaction. The ruling emphasized that the payment of interest, even if used for purchasing capital assets, can be treated as revenue expenditure if it facilitates the assessee's trading operations without adding to the fixed capital. Therefore, the Tribunal's decision to treat the interest payment as revenue expenditure was upheld. Issue 4: Pre-operative Expenses The Tribunal's decision was supported by the ruling in Commissioner Income Tax Vs. Smt. Jyoti Devi, which held that reassessment proceedings based on a mere change of opinion were not permissible. The Tribunal found no new material or information that warranted a reassessment of the pre-operative expenses. Therefore, the Tribunal's decision to treat the pre-operative expenses as revenue expenditure was upheld. Issue 5: Labour Welfare Expenses The Tribunal's decision to allow the labour welfare expenses was based on factual determinations and did not warrant interference. The Tribunal found that the assessee had adequately justified the expenditure as being wholly and exclusively for business purposes. Issue 6: Depreciation on Vehicle The Tribunal's decision to delete the disallowance of depreciation on the vehicle was also based on factual determinations. The Tribunal found that the assessee had provided sufficient justification for the depreciation claim, and no further interference was necessary. Conclusion: All issues were answered in favor of the assessee and against the department. The appeals were dismissed, and a copy of the judgment was placed in each file.
|
