2017 (11) TMI 1853 - AT - Income Tax

Incentive given by the Government for exploring new market for exports - revenue receipts or capital receipts - HELD THAT - This Tribunal in the assessee s own case for assessment years 2016 (7) TMI 951 - ITAT CHENNAI examined this issue and found that the incentive received by the assessee is a capital receipt and it cannot be treated as income under Section 2(24) or 28 of the Act. Since the facts are similar and identical to that of assessment years 2011-12 and 2012-13 the CIT(Appeals) has rightly placed reliance on the order of this Tribunal. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Amount spent on construction of building in the lease hold land - HELD THAT - Since this Tribunal remitted back the matter to the file of the Assessing Officer to decide the issue afresh for assessment year 2011-12 it would be more appropriate for the Assessing Officer to examine the matter and find out whether the cost of construction of the building on the leasehold land is revenue expenditure or capital expenditure. AO shall bring on record whether the assessee saved any rent in future. Accordingly the matter needs to be re-examined by the Assessing Officer. Hence the orders of both the authorities below are set aside and the issue of disallowance of cost of construction of the building and the cost of electrical fittings is remitted back to the file of the Assessing Officer who shall re-examine the matter in the light of judgment of Apex Court in Madras Auto Service (P.) Ltd. 1998 (8) TMI 1 - SUPREME COURT and TVS Lean Logistics Ltd. 2007 (6) TMI 44 - HIGH COURT MADRAS

Summary

Issues:
1. Treatment of government incentive for exploring new markets as capital or revenue receipt.
2. Classification of expenditure on construction of building in leasehold land as revenue or capital expenditure.

Issue 1:
The first issue pertains to the treatment of a government incentive for exploring new markets as either a capital or revenue receipt. The Revenue contended that the incentive provided by the Government of India for exploring new markets should be considered a capital receipt, as it expands the market area of the assessee. Citing previous tribunal decisions, the Revenue argued that such incentives cannot be treated as income under the Income-tax Act. The Tribunal agreed with the Revenue's position, emphasizing that the incentive received by the assessee is a capital receipt and cannot be classified as income under relevant sections of the Act. The CIT(Appeals) also supported this view by relying on the tribunal's previous order.

Issue 2:
The second issue revolves around the classification of expenditure amounting to ?1,54,10,800 on the construction of a building in leasehold land. The Revenue claimed that the cost of construction should be considered a capital expenditure, while the CIT(Appeals) allowed it as a revenue expenditure. The Revenue argued that both the cost of construction and electrical fittings should be capitalized, as they form part of the building. However, the assessee contended that based on previous court judgments, the construction cost should be treated as revenue expenditure due to the ownership structure of the building. The CIT(Appeals) supported the assessee's position, treating the construction cost as revenue expenditure. Regarding the electrical fittings, the CIT(Appeals) classified them as capital expenditure. The Tribunal, after considering both arguments, remitted the matter back to the Assessing Officer for further examination in light of relevant court judgments to determine whether the construction cost and electrical fittings should be treated as revenue or capital expenditure.

In conclusion, the Tribunal addressed the issues of government incentives for market exploration and the classification of construction expenditure on a building in leasehold land. The judgment highlighted the distinction between capital and revenue receipts, emphasizing the need for a thorough examination based on legal precedents. The decision to remit the construction expenditure matter back to the Assessing Officer underlined the importance of a detailed assessment in determining the nature of expenditures.