2016 (8) TMI 213 - HC - Income Tax

Payment to GEDA - revenue expenditure or capital expenditure - Held that - The payment is made to GEDA towards electric connection, in our view, the expenditure incurred by the assessee is in the nature of revenue expenditure. The Tribunal as well as the Commissioner (Appeal) has, therefore, rightly held the expenditure as revenue expenditure. In that view of the matter, we answer the question in favour of the assessee and against the revenue.

Summary

Issues Involved:
1. Whether the payment to Gujarat Energy Development Authority (GEDA) is to be treated as revenue expenditure or capital expenditure.

Issue-wise Detailed Analysis:

1. Nature of Expenditure to GEDA:

The primary issue in this case is whether the payment of ?1.25 crore made by the assessee to Gujarat Energy Development Authority (GEDA) should be classified as revenue expenditure or capital expenditure. The Assessing Officer treated this expenditure as capital in nature, arguing that it was meant for the power evacuation system and sanctioned capacity for the assessee's wind farm project, and thus, should be capitalized. The assessee argued that the expenditure should be treated as revenue expenditure since the ownership of the assets created by this expenditure did not vest with the assessee but with GEDA.

Arguments by the Appellant-Revenue:

The counsel for the appellant-revenue contended that the expenditure was for the power evacuation system and the sanctioned capacity for the wind farm project, which are capital in nature. They argued that the Tribunal erred in holding that ownership is necessary for an expenditure to be considered capital. The appellant-revenue maintained that the view taken by the Assessing Officer should be accepted.

Arguments by the Respondent-Assessee:

The counsel for the respondent-assessee argued that the Commissioner (Appeals) correctly treated the expenditure as revenue expenditure, which was upheld by the Tribunal. They cited the decision in Commissioner of Income-tax v. Abs Industries Ltd., where similar contributions to the GIDC effluent channel project were allowed as revenue expenditure. The respondent-assessee emphasized that since the ownership of the assets created by the expenditure did not vest with them, the expenditure should be treated as revenue.

Tribunal and Commissioner (Appeals) Findings:

The Tribunal and Commissioner (Appeals) concluded that the expenditure was revenue in nature because the ownership of the assets created by the expenditure did not vest with the assessee but with GEDA. The Commissioner (Appeals) relied on the Supreme Court decision in CH vs. Madras Auto Services (P) Ltd., where the cost of construction was allowed as revenue expenditure since the ownership of the property belonged to the lessor.

Court's Analysis and Conclusion:

The court reviewed the arguments and decisions cited by both parties. It considered the Tribunal's reasoning and the supporting case law, particularly the decision in Commissioner of Income-tax v. Abs Industries Ltd., which allowed similar contributions as revenue expenditure. The court concluded that the expenditure incurred by the assessee towards the electric connection to GEDA was indeed revenue in nature. Consequently, the court upheld the Tribunal and Commissioner (Appeals) decisions, answering the question in favor of the assessee and dismissing the appeal.

Conclusion:

The court affirmed that the payment made to GEDA for the electric connection is to be treated as revenue expenditure, not capital expenditure, as the ownership of the assets created by this expenditure did not vest with the assessee. The appeal was dismissed, and the question was answered in favor of the assessee and against the revenue.