2019 (6) TMI 1126 - HC - Income Tax

Disallowance of expenses incurred towards fertility improvement programme - nature of expenditure - revenue or capital expenditure - HELD THAT - Question raised are no longer res integra in view of the decision of this Court in the case of Pr. CIT vs. Gujarat Cop, Op. Milk Marketing Fedaration Ltd. . 2018 (10) TMI 1385 - GUJARAT HIGH COURT 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. In furtherance of such objectives, the GCMMF would hold camps for village awareness, in select villages would carry out tagging and registration of animals, would hold fertility camps, would carry out mass deworming programmes, would distribute mineral mixture, carry out vaccination at mass scale, provide balanced cattle feed etc. Thus seen that 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 corelatable to any tangible returns which can be expected out of such expenditure. Also confirmed by SC. 2019 (6) TMI 1104 - SC ORDER - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of expenses incurred towards fertility improvement program.
2. Nature of expenditure - capital or revenue.

Analysis:
1. The Tax Appeal under Section 260A of the Income Tax Act, 1961 was filed by the Revenue against the order passed by the Tribunal regarding the disallowance of expenses amounting to ?591.38 Lacs incurred towards a fertility improvement program for the assessment year 2012-13. The Revenue raised two substantial questions of law regarding the deletion of the disallowance by the ITAT. The High Court noted that the questions raised were similar to a previous decision and quoted relevant observations from a case to support its decision.

2. The High Court referred to a previous decision in the case of Principal Commissioner of Income Tax 2, Vadodara vs. Gujarat Cop, Op. Milk Marketing Federation Ltd. where it was observed that the expenditure in question was aimed at improving fertility among milk animals by addressing various issues causing infertility. The activities undertaken as part of the program were detailed, focusing on practices for better fertility, such as holding camps for awareness, mass deworming programs, vaccination, distribution of mineral mixture, and providing balanced cattle feed. The Court concluded that the expenditure was general in nature, aimed at business improvement, and not correlatable to tangible returns. The Court further mentioned that the Assessing Officer did not provide detailed reasons for considering the expenditure as capital in nature.

3. The judgment of the High Court in the aforementioned case was appealed before the Supreme Court, and the Special Leave Petition (S.L.P.) filed by the Revenue was dismissed on 26th April 2019. As a result, the High Court upheld the decision of the Tribunal and dismissed the appeal by the Revenue. The Court concluded that the expenditure incurred towards the fertility improvement program was revenue expenditure and not of a capital nature, as it was for the purpose of the business and did not result in enduring benefits or advantages to the assessee.