2018 (9) TMI 603 - HC - Income Tax

Allowability of additional expenses incurred by the assessee for restructuring its business - revenue v/s capital expenditure - Held that - The Appellate Tribunal assessed the facts and it was primarily on the appreciation of facts that the Tribunal found that the expenditure on account of restructuring incurred by the assessee had to be regarded as a revenue expenditure. Since the issue as to whether the restructuring of expenses could in the circumstances be treated as a revenue expenditure or a capital expenditure was essentially a question of fact and the Appellate Tribunal has taken relevant considerations into account and noticed the law applicable such question does not call for any reconsideration. Expenditure in relation to unit sold - Held that - As sale of one of the units of the assessee to Nicholas Piramal India Limited (NPIL) for a consideration of about 2.43 crore. At the time of the sale of the pharmaceutical business of the assessee as a going concern and for a slump price it was agreed that the purchaser would take over the risk of the business with effect from January 1 2002 though the actual transfer of the business to NPIL was on March 27 2002. In considering the views of the assessing officer and of the Commissioner (Appeals) the Appellate Tribunal referred to the test of determining whether the several businesses of an entity carrying on various businesses could be segregated and regarded as different units or had to be taken as a whole. The Appellate Tribunal referred to the judgment in BR LIMITED VERSUS V.P. GUPTA C.I.T. BOMBAY 1978 (5) TMI 3 - SUPREME COURT rendered in similar circumstances and was satisfied that since the whole of the expenses of the assessee had been indicated rather than the expenses incurred in respect of the particular unit the point sought to be raised by the Revenue was of no significance. No real question of law arises on such aspect.

Summary

Issues:
1. Additional expenses incurred for restructuring business - capital expenditure or revenue expenditure?
2. Treatment of expenses incurred in respect of a unit sold before actual transfer.

Analysis:

Issue 1: Additional expenses for restructuring business
The Revenue challenged an order of the Appellate Tribunal regarding the classification of additional expenses incurred by the assessee for restructuring its business. The Revenue contended that these expenses should be considered as capital expenditure. The Tribunal's decision was based on a judgment of the Punjab and Haryana High Court, which the Revenue criticized for not appreciating the contents of the judgment. The Tribunal's approach to legal judgments was deemed peculiar as it did not delve into the underlying legal principles. The assessee argued that the expenditure on restructuring should be treated as a revenue expenditure, citing the unity of control as the key factor in determining whether separate units are part of the same business. The Tribunal, after assessing the facts, concluded that the restructuring expenses were revenue expenditure, supported by a judgment of the Punjab and Haryana High Court. The Court upheld the Tribunal's decision, emphasizing that the issue was primarily factual, and the Tribunal had considered relevant factors and applicable law.

Issue 2: Treatment of expenses for a unit sold before transfer
The second ground raised by the Revenue concerned the treatment of expenses incurred in respect of a unit sold before the actual transfer. The unit was sold to another entity, and the purchaser assumed the business risk before the official transfer date. The Appellate Tribunal examined whether the various businesses of the assessee should be treated as separate units or as a whole. Referring to a Supreme Court judgment on a similar matter, the Tribunal found that since all expenses of the assessee were consolidated rather than specific to the sold unit, the Revenue's argument lacked significance. The Court agreed with the Tribunal's analysis, stating that no substantial question of law arose in this context. Consequently, the Court dismissed the Revenue's appeal, affirming the Tribunal's detailed consideration of the issues at hand.

In conclusion, the Court upheld the Tribunal's decision on both issues, emphasizing the factual nature of the first issue and the consolidated expense approach for the second issue. The judgment highlights the importance of factual assessments and legal interpretations in determining the classification of expenses in taxation matters.