2019 (10) TMI 1165 - AT - Income Tax

Expenditure on relocation of existing equipment - Nature of expenditure - revenue or capital expenditure - HELD THAT - We observe that in proceedings before the CIT(A), the assessee had categorically submitted that the expenditure was incurred on replacement of perforated ceiling tiles in the laboratory. It is apparent from records that the expenditure was incurred on maintenance of the laboratory caused due to normal wear and tear. No new asset has come into existence, thus, we are of the considered view that the expenditure was in the nature of repairs and maintenance and not on capital account. The assessee has claimed expenditure on relocation of existing equipment to new Effluent Treatment Plant under the head repairs and maintenance . Revenue disallowed aforesaid expenditure on the premise that assessee would have got enduring benefit by relocation of the equipment and hence, the expenditure is capital in nature. We do not concur with the findings of the authorities below. It is not disputed by the Revenue that the equipment was already in existence. No new plant or machinery was purchased by the assessee. The relocation of the existing equipment by any stretch of imagination cannot result in creation of any new asset. At best it could have resulted in efficient running of the plant and machinery. Thus, the expenditure on relocation of existing equipment is revenue in nature. In the result, Ground No.II raised by the assessee is allowed. Treating the entire advance licence as taxable in the assessment under appeal - Year of assessment - HELD THAT - Considering the decisions rendered in the cases of CIT vs Shoorji Vallabhdas Co. 1962 (3) TMI 6 - SUPREME COURT , Morvi Industries Ltd. 1971 (10) TMI 5 - SUPREME COURT and the provisions of section 28(iv) it is unambiguously clear that it is only to the extent that assessee has derived benefits from the licence during the impugned assessment year and the amount is chargeable to tax. Assessee has stated at the bar that in the subsequent assessment year assessee has offered to tax the amount to the extent benefit is derived under the licence. Hence, the Revenue is not deprived of tax on the benefit derived by assessee from advance licence. Thus, in view of the facts of the case and the decision of Hon'ble Apex Court, we find merit in the contentions of the assessee.

Summary

Issues Involved:
1. Depreciation on Effluent Treatment Plant.
2. Treatment of license received under Served from India Scheme as revenue or capital receipt.
3. Classification of expenditure on repairs and maintenance as capital or revenue.
4. Taxability of unutilized license amount under Served from India Scheme.
5. Charging of interest under section 220(2) of the Act.

Issue-wise Detailed Analysis:

1. Depreciation on Effluent Treatment Plant:
The Revenue's appeal was dismissed due to low tax effect. The tax effect involved was ?22,44,284/-, which is below the ?50 Lakhs threshold as per CBDT Circular No. 17/2019 dated 08-08-2019. The Tribunal dismissed the appeal without delving into the merits, citing the circular's monetary limit for filing appeals.

2. Treatment of License Received under Served from India Scheme:
The assessee's appeal included the issue of treating the license amount of ?95,60,000/- as revenue receipt. The assessee argued it should be considered capital in nature. However, this ground was not pressed by the assessee and was dismissed as not pressed.

3. Classification of Expenditure on Repairs and Maintenance:
The assessee contested the classification of ?7,53,197/- spent on repairs and maintenance as capital expenditure. The Tribunal observed that the expenditure on replacing tiles and relocating equipment did not result in the creation of a new asset or enduring benefit. The expenditure was deemed revenue in nature, allowing the assessee's appeal on this ground.

4. Taxability of Unutilized License Amount under Served from India Scheme:
The additional ground raised by the assessee involved the taxability of the unutilized license amount of ?95,60,000/-. The Tribunal referred to the Supreme Court's decision in CIT vs. Excel Industries Ltd., which held that benefits under advance licenses represent hypothetical income and are taxable only when realized. The Tribunal ruled that only the utilized amount during the assessment year should be taxed, allowing the assessee's appeal on this ground.

5. Charging of Interest under Section 220(2) of the Act:
The assessee's appeal included a ground against charging interest under section 220(2). The Tribunal noted that charging interest is consequential and mandatory, dismissing this ground.

Summary of Appeals:
- The Revenue's appeal was dismissed due to low tax effect.
- The assessee's appeals for the assessment years 2005-06, 2006-07, and 2008-09 were partly allowed, with favorable rulings on the classification of repairs and maintenance expenditure and the taxability of unutilized license amounts. The ground regarding interest under section 220(2) was dismissed.