2015 (6) TMI 427 - HC - Income Tax

Plantation expenditures - ITAT allowed it as a revenue expenditure - Held that - As relying on case of Hindustan Electro Graphites Ltd. Vs. CIT 1995 (12) TMI 67 - MADHYA PRADESH High Court wherein held that the expenditure did not result in any gain to the assessee and did not enhance the value of the establishment. The expenditure was intended to make the atmosphere pollution-free. The Tribunal did not record any categorical finding that the expenditure resulted in any appreciation of the assets or was unrelated to the business activities of the assessee. Plantation in such factory is necessary to avoid pollution of environment and create congenial atmosphere. The Tribunal disallowed the expenditure on wrong premises. The amount expended was wholly and exclusively for the purposes of the business and was not in the nature of capital expenditure or personal expenses of the assessee. The amount was deductible under section 37 - Decided against revenue. VRS payments - ITAT allowed it as a revenue expenditure - Held that - As relying on case of Commissioner of Incometax Vs. Simpson and Co. Ltd. (1996 (6) TMI 12 - MADRAS High Court) which was also considered by the learned Tribunal, wherein held, that the amount paid to employees under the Voluntary Retirement Scheme was an allowable deduction as the expenditure was incurred on grounds of commercial expediency and the expenditure was laid out wholly and exclusively for purposes of the business of the assessee. - Decided against revenue.

Summary

Issues:
1. Allowability of plantation expenditures as revenue expenditure.
2. Classification of VRS payments as capital or revenue expenditure.

Analysis:

Issue 1: Allowability of plantation expenditures as revenue expenditure

The appeal challenged the Tribunal's decision allowing plantation expenditures as revenue expenditure following a previous judgment in favor of the assessee. The Assessing Officer disallowed the expenditure, citing environmental concerns and the need for forest-based industries to undertake plantation activities. The C.I.T.(Appeals) reversed the disallowance, holding the expenditure as allowable under Section 37. The Appellate Tribunal upheld this decision. The revenue raised questions regarding the nature of the expenditure, but the High Court referred to the judgment in Hindustan Electro Graphites Ltd. case, emphasizing that the expenditure aimed at environmental preservation and did not result in asset appreciation. The Court agreed that the expenditure was wholly for business purposes and deductible under Section 37, dismissing the revenue's appeal.

Issue 2: Classification of VRS payments as capital or revenue expenditure

The revenue also contested the classification of Voluntary Retirement Scheme (VRS) payments as revenue expenditure, arguing they should be treated as capital expenditure due to long-term benefits to the assessee. However, the Court referred to the judgment in Commissioner of Incometax Vs. Simpson and Co. Ltd., which deemed VRS payments as allowable deductions incurred for commercial expediency and business purposes. The Court concurred with this view, stating that the expenditure was laid out wholly and exclusively for the business of the assessee. As the appellant did not challenge the correctness of this judgment, the Court disposed of the appeal, affirming the deductibility of VRS payments as revenue expenditure.

Therefore, the High Court upheld the Tribunal's decision regarding the allowance of plantation expenditures as revenue expenditure under Section 37 and the classification of VRS payments as revenue expenditure based on commercial expediency and business purposes, dismissing the revenue's appeal on both issues.