2015 (12) TMI 1787 - HC - Income Tax

Interest paid on borrowings disallowance - HELD THAT - This question stands concluded against the revenue as decided in earlier AY 1999-00 Treatment to sales tax incentive subsidy - revenue or capital subsidy - HELD THAT - As the entire issue for the A.Y.2000-01 is still at large to be decided by the Assessing Officer consequent to the impugned order of the Tribunal the question as proposed does not give rise to any substantial question of law. Hence not entertained. Transfer to Debenture Redemption Reserve to be excluded in computing book profits u/s 115JA - MAT - HELD THAT - Issue covered against the revenue by the decision of this Court in CIT vs Raymond Ltd 2012 (4) TMI 127 - BOMBAY HIGH COURT . In the above view, the question as proposed does not give rise to any substantial question of law Allowability of sum paid by the Assessee Company to Himachal Pradesh State Electricity Board for setting up of Kangoo Power Sub-station - HELD THAT - The revenue having accepted the decision of the Tribunal for assessment year 1999-00 on this issue by not having challenged the same, cannot now challenge the impugned order in the absence of any specific ground being made out justifying challenging the impugned order on this issue, when it is accepted for A.Y.1999-00. Accordingly, question G does not give rise to any substantial question of law. Claim of expenditure in respect of temporary structures - revenue or capital expenditure - HELD THAT - We find that both the CIT (A) as well as the Tribunal have rendered a finding of fact that the structure was constructed at the client s site and was temporary in nature. Further they have also rendered a finding that the temporary structure is necessary for the purpose of carrying out its business more efficiently and would be considered being an integral part of its profit earning process. Thus there is no advantage of enduring nature. Expenditure incurred on construction of stadium - HELD THAT - We find that the test of allowing such expenditure as laid down by the Supreme Court in SRI VENKATA SATYANARAYANA RICE MILL CONTRACTORS VS. CIT 1996 (10) TMI 2 - SUPREME COURT that where the payment is out of commercial expediency and above board such expenses are to be considered to have been incurred in the course of business. Therefore allowable as an expenditure under Section 37 (1) of the Act as allowing an expenditure of commercial expediency and not whether it is compulsory or voluntary. On application of the above test, the view taken by the impugned order of the Tribunal is a possible view. Appeal admitted on Questions nos. A, B and E.

Summary

Issues Involved:
1. Classification of road transport subsidy as capital or revenue receipt
2. Treatment of power tariff incentive and electricity duty as capital or revenue receipt
3. Allowance of interest paid by the company on borrowings
4. Treatment of sales tax incentive as capital receipt
5. Exclusion of dividend distribution tax in computing book profits
6. Exclusion of transfer to Debenture Redemption Reserve in computing book profits
7. Allowance of payment made for setting up power sub-station
8. Allowance of expenditure on temporary structures
9. Allowance of expenditure on construction of a stadium

Analysis:
1. Road Transport Subsidy (Question A): The Tribunal held the subsidy as a capital receipt, contrary to the Assessing Officer's view of it being a revenue receipt. The issue remains unresolved.

2. Power Tariff Incentive (Question B): Similar to the road transport subsidy, the Tribunal considered the incentive as a capital receipt, not a revenue receipt as assessed by the AO.

3. Interest Paid on Borrowings (Question C): The Tribunal allowed the interest paid by the company on borrowings. This issue is not entertained due to a previous court order.

4. Sales Tax Incentive (Question D): The Tribunal did not conclusively decide on the nature of the sales tax incentive, sending it back to the AO for further examination. This differs from the decision for the previous assessment year.

5. Dividend Distribution Tax (Question E): The Tribunal excluded dividend distribution tax in computing book profits under section 115JA.

6. Transfer to Debenture Redemption Reserve (Question F): The Tribunal also excluded the transfer to Debenture Redemption Reserve in computing book profits, following a previous court decision.

7. Payment for Power Sub-Station (Question G): The Tribunal upheld the payment made by the company to the Himachal Pradesh State Electricity Board for setting up a power sub-station, as no challenge was made against it.

8. Expenditure on Temporary Structures (Question H): The Tribunal deemed the expenditure on temporary structures as a revenue expenditure, not capital, as it was necessary for efficient business operations.

9. Expenditure on Stadium Construction (Question I): The expenditure on stadium construction was allowed as a revenue expenditure by the Tribunal, considering it as a responsible corporate citizen's act contributing to goodwill.

The appeal was admitted on Questions A, B, and E for further consideration, while the other issues were not entertained. The Tribunal's decisions on various issues were based on factual findings and legal interpretations, resulting in different outcomes for each question raised.