2015 (5) TMI 119 - HC - Income Tax

Appeal admitted by the High Court on the following grounds (1) Whether on the facts andin the circumstances of the case and in law, the ITAT was right in holding that notional sales tax exemption amount of ₹ 38,62,33,200/- is a capital receipt not liable to income tax? (2) Whether on the facts and in the circumstances of the case and in law, the ITAT was right in allowing as a revenue deduction the contribution of ₹ 40,25,388/- made by the Assessee Company to various clubs ran by and meant for the staff and their families at various places even though such expenditure was not allowable under section 40A(9) of the Income Tax Act?

Issues Involved:
1. Classification of sales tax exemption amount as capital or revenue receipt.
2. Deduction of contributions to various associations as business expenditure.
3. Nature of expenditure on termination of BOOT contract.
4. Allowability of registration fees and stamp duty as revenue expenditure.
5. Classification of reactor relocation expenses as revenue or capital expenditure.
6. Deduction of contributions to staff clubs under section 40A(9) of the Income Tax Act.
7. Admission of appeal based on minimal tax effect.

Issue-wise Detailed Analysis:

1. Classification of Sales Tax Exemption Amount:
The Tribunal was dealing with the classification of Rs. 38,62,33,200/- received as a sales tax exemption by the assessee. The Assessing Officer treated this amount as a revenue receipt, while the assessee claimed it as a capital receipt. The court noted that this issue had already been admitted in a previous appeal, Income Tax Appeal No.4157/2009, involving the same parties. Therefore, the appeal was admitted on this question.

2. Deduction of Contributions to Various Associations:
The revenue argued that the contributions made by the assessee to various associations were not for business purposes and thus not deductible. The Tribunal, however, found that similar contributions had been allowed as revenue expenditure in previous years and relied on earlier decisions by itself and the High Court of Karnataka. The Tribunal's findings were based on consistent factual positions and were not deemed perverse. Consequently, the appeal on this issue was dismissed.

3. Nature of Expenditure on Termination of BOOT Contract:
The assessee made a one-time payment of Rs. 102,03,43,311/- to terminate a BOOT contract with M/s. Dodsal Ltd. The revenue contended that this payment was for acquiring a capital asset. The Tribunal, however, found that the payment was for obtaining a right to use the pipeline, not ownership, and thus treated it as revenue expenditure. The Tribunal's view was supported by the Supreme Court's judgment in Commissioner of Income Tax v/s. Madras Auto Service(P.) Ltd., which held that such expenditures, aimed at obtaining business advantages, are revenue in nature. The appeal on this issue was dismissed.

4. Allowability of Registration Fees and Stamp Duty:
The revenue argued that the registration fees and stamp duty paid on lease transactions should be apportioned over the lease period. The Tribunal held that these expenses were on the instrument, not the transaction, and allowed them as revenue expenditure in the first year itself. The court found no deviation from settled principles and dismissed the appeal on this issue.

5. Classification of Reactor Relocation Expenses:
The revenue contended that the expenditure of Rs. 24.87 lakhs for relocating a reactor within the factory premises was capital in nature. The Tribunal found that the reactor was an existing asset, merely relocated for optimal use, and classified the expenditure as revenue. The court upheld this view, referencing the judgment in CIT V/s. Abbott Laboratories (I) Pvt. Ltd., which allowed similar expenditures for improving existing resources. The appeal on this issue was dismissed.

6. Deduction of Contributions to Staff Clubs:
The revenue argued that contributions of Rs. 40,25,388/- to staff clubs were not deductible under section 40A(9) of the Income Tax Act. The Tribunal, however, followed the Division Bench judgment in Commissioner of Income Tax V/s. Bharat Petroleum Corporation Ltd., which allowed such deductions as staff welfare expenses. The court found that the Tribunal's view was consistent with this precedent and admitted the appeal on this question.

7. Admission of Appeal Based on Minimal Tax Effect:
The revenue raised a question involving a tax effect of Rs. 2.66 lakhs. The court, considering the negligible tax effect, decided not to admit the appeal on this question.

Conclusion:
The appeal was admitted on two questions: the classification of the sales tax exemption amount and the deduction of contributions to staff clubs. The court directed the Registrar to ensure the original record is summoned from the Tribunal and provided for inspection. The paper book was deemed sufficient for admission, and the Registry was instructed to prepare a complete paper book as per the rules.

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