2007 (11) TMI 374 - HC - Income Tax

Capital or Revenue Expenditure- The assessee paid Rs. 24,22,063 to a co-operative society on account of contribution for common effluent treatment plant and claimed deduction thereof. The Assessing Officer disallowed the amount. The Commissioner (Appeals) and Tribunal held that the assessee had made only a contribution for lying down the pipeline for the purpose of carrying effluent discharge to protecting business as on going entity. Held that- there was no merit in the appeal, dismiss the appeal.

Summary

Issues: Appeal against deletion of disallowance of payment to cooperative society for common effluent treatment plant; Nature of payment - penal or allowable; Enduring benefit and revenue account treatment of payment.

Analysis:
1. The appeal raised three questions regarding the confirmation of the order deleting the disallowance of a payment made to a cooperative society for a common effluent treatment plant, the nature of the payment, and whether the payment provided an enduring benefit and its treatment in the revenue account.

2. The Tribunal considered the issues in light of a previous decision in the case of Joint CIT v. Deversons Industries Ltd. The Tribunal allowed the claim of the assessee based on the nature of the obligation assumed by the assessee to contribute towards the laying of pipelines for effluent discharge. The Tribunal emphasized that the expenditure was revenue in nature, incurred solely for business purposes, to avoid litigation and ensure smooth business conduct, thus protecting business profits and assets.

3. The Tribunal found the facts and circumstances of the present case similar to the previous decision and upheld the Commissioner of Income-tax (Appeals)'s decision to allow the claim of the assessee. The Tribunal concurred with the view that the payment made by the assessee was a contribution to protect its ongoing business entity, and as such, the expenditure was considered deductible.

4. Both the Commissioner of Income-tax (Appeals) and the Tribunal concluded that the payment made by the assessee was solely for the purpose of laying down pipelines for effluent discharge to protect its business interests. As a result of the concurrent findings, the appeal was dismissed, emphasizing that the assessee's contribution was not penal in nature but a necessary expense for business continuity.

5. In summary, the Tribunal's decision was based on the revenue nature of the expenditure, the business purpose behind the payment, and the obligation assumed by the assessee to contribute towards the common effluent treatment plant. The judgment highlighted that the payment provided no direct financial benefit to the assessee but was essential for regulatory compliance and business sustainability, leading to the dismissal of the appeal against the deletion of the disallowance.