2018 (10) TMI 1385 - HC - Income Tax

Nature of expenditure - fertility improvement program amongst milk animals - revenue or capital - Held that - Unfortunately, neither Commissioner of Income Tax (Appeals) nor the Tribunal addressed the question of expenditure being capital in nature and focused entire attention on the allowability of the expenditure as business expenditure. Even the Assessing Officer has not cited detailed reasons as to why in his opinion the expenditure was capital in nature. We may note that the activities carried on by GCMMF under the said programme were all aimed at fertility improvement amongst milk animals. As part of the programme, the GCMMF would address the typical reasons for infertility such as improper practice in calf rearing, low body weight of animals, lack of nutrition/mineral, poor health condition, lack of awareness amongst farmers about improved breeding practices etc. The expenditure was general in nature and aimed at improving the practices for better fertility amongst milk animals by addressing the issues which caused infertility. The expenditure therefore was for the purpose of its business and would not be co-relatable to any tangible returns which can be expected out of such expenditure. There is therefore no reason to believe that such expenditure was revenue in nature - Decided against revenue.

Summary

Issues:
1. Disallowance of expenses towards fertility improvement program
2. Treatment of Traveling and Conveyance Expenditure as revenue or capital in nature
3. Treatment of Lodging and Boarding Expenditure as revenue or capital in nature

Analysis:
1. The case involved an appeal by the Revenue against the judgment of the Income Tax Appellate Tribunal regarding the disallowance of expenses incurred towards a fertility improvement program. The Assessing Officer contended that the expenditure was not exclusively for business purposes and was capital in nature. The respondent, a cooperative federation, argued that the program aimed to increase milk production by improving fertility among animals. The Tribunal upheld the appeal, emphasizing that the expenditure was solely for business purposes. The High Court concurred with this finding, noting that the activities undertaken were general in nature and aimed at enhancing fertility without expecting tangible returns, thus dismissing the Tax Appeals.

2. The Revenue also challenged the treatment of Traveling and Conveyance Expenditure as revenue instead of capital in nature. However, the Court did not delve into this issue due to the minimal value of the expenditure, keeping it open for future consideration.

3. Similarly, the question of treating Lodging and Boarding Expenditure as revenue or capital in nature was not addressed in detail by the authorities. The Court noted that the focus was on the allowability of the expenditure as business expenditure, without a thorough examination of its capital nature. Despite this, the Court analyzed the nature of the expenditure, emphasizing that the activities aimed at fertility improvement did not entail tangible returns, leading to the dismissal of the Tax Appeals.

In conclusion, the High Court upheld the Tribunal's decision, affirming that the expenses incurred for the fertility improvement program were revenue in nature and solely for the business purposes of the cooperative federation, dismissing the Revenue's appeals.