2022 (10) TMI 687 - HC - Income Tax

Nature of receipt - excess realization of levy price on sale of incentive sugar - revenue or capital receipt - expenses in connection with construction and handing over of transmission lines/substation to Karnataka Government was treated as revenue expenditure - Exclusion of incentive sugar from valuation of closing stock - whether Tribunal was right in excluding the incentive sugar from valuation of closing stock? - HELD THAT - Question now been answered in the case of Additional Commissioner of Income-tax, Bareilly vs. Dhampur Sugar Mill (P.) Ltd. 2014 (11) TMI 356 - ALLAHABAD HIGH COURT held that where an expenditure is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there is very good reason, in the absence of special circumstances leading to an opposite conclusion, to treat it as an expenditure properly attributable not to revenue but to capital. If the advantage which had accrued to the assessee was to facilitate its trading operation or the conduct of its business while leaving the fixed capital untouched, the expenditure would be on the revenue account. Expenditure which was incurred by the assessee in the laying of transmission lines was clearly on the revenue account -CL. The expenditure which was incurred by the assessee was for facilitating the efficient conduct of its business since the assessee had to supply electricity to its sole consumer - This was not an advantage of a capital nature. The Tribunal was, in these circumstances, correct in affirming the view of the Commissioner (Appeals) - Decided in favour of assessee.

Issues Involved:
1. Treatment of excess realization of levy price on sale of incentive sugar as capital receipt.
2. Exclusion of incentive sugar from valuation of closing stock.
3. Treatment of expenses related to the construction and handing over of transmission lines/substation to the Karnataka Government as revenue expenditure.
4. Consideration of the date for advance tax payment for interest levy under Section 234C.

Issue-wise Detailed Analysis:

1. Treatment of Excess Realization of Levy Price on Sale of Incentive Sugar as Capital Receipt:
The court did not admit this issue for detailed consideration as it was already covered by a previous decision in the assessee's own case against the Revenue in T.C.(A).Nos.582 and 583 of 1995. Therefore, the Tribunal's decision to treat the excess realization of levy price on sale of incentive sugar as a capital receipt was upheld without further analysis.

2. Exclusion of Incentive Sugar from Valuation of Closing Stock:
Similar to the first issue, the court did not admit this issue for detailed consideration, as it was also covered by the previous decision in the assessee's own case. Consequently, the Tribunal's decision to exclude the incentive sugar from the valuation of closing stock was upheld.

3. Treatment of Expenses Related to the Construction and Handing Over of Transmission Lines/Substation to the Karnataka Government as Revenue Expenditure:
This was the primary issue admitted for consideration. The court referred to the judgment of the Allahabad High Court in the case of Additional Commissioner of Income-tax, Bareilly vs. Dhampur Sugar Mill (P.) Ltd., which dealt with a similar issue. The key points from this judgment were:
- The assessee incurred expenses for constructing a transmission line, which was handed over to UPPCL (Uttar Pradesh Power Corporation Limited).
- The expenditure was claimed as a deduction under Section 37(1) of the Income Tax Act.
- The Assessing Officer disallowed the expenditure, considering it as capital expenditure since the transmission line was constructed on the assessee's premises.
- The Commissioner (Appeals) and the Tribunal held that the expenditure was of a revenue nature as the ownership of the transmission line vested with UPPCL, and the assessee only had the right to use it for its business operations.
- The court emphasized that the expenditure facilitated the assessee's business operations without resulting in any capital accretion for the assessee.

The court also referenced several other judgments, including:
- British Insulated and Helsby Cables Ltd Vs Atherton: Established the principle that expenditure bringing into existence an asset or advantage of enduring benefit should be treated as capital expenditure.
- Empire Jute Co Ltd Vs Commissioner of Income Tax: Clarified that not all enduring benefits result in capital expenditure; the nature of the advantage in a commercial sense is crucial.
- L H Sugar Factory and Oil Mills (P) Ltd Vs Commissioner of Income Tax: Held that contributions for infrastructure facilitating business operations without acquiring ownership are revenue expenditures.
- Commissioner of Income Tax Vs Gujarat Mineral Development Corporation: Reinforced that expenditure facilitating business operations without altering fixed capital is revenue expenditure.
- Commissioner of Income Tax Vs Coats Viyella India Ltd: Similar principle applied to contributions for public infrastructure facilitating business operations.
- Commissioner of Income Tax Vs Hindustan Zinc Ltd: Held that expenditure on infrastructure for business operations, where ownership remains with a third party, is revenue expenditure.

Based on these precedents, the court concluded that the expenditure incurred by the assessee for constructing transmission lines, which were handed over to the Karnataka Government, was revenue in nature. The Tribunal's decision to treat it as revenue expenditure was affirmed.

4. Consideration of the Date for Advance Tax Payment for Interest Levy under Section 234C:
This issue was also not admitted for detailed consideration, as it was already decided in 128 ITR 617 (Commissioner of Income-tax, Tamil Nadu-I vs. Kumudam Publications (P) Ltd.). The Tribunal's decision to consider the date on which the advance tax cheque was tendered to the bank (15.06.2000) rather than the date of clearance (16.06.2000) for interest levy under Section 234C was upheld.

Conclusion:
The appeals were dismissed, and the Tribunal's decisions on all the issues were upheld. The court reiterated that the expenditure on transmission lines handed over to the Karnataka Government was revenue in nature, following established legal principles and precedents. No costs were awarded.

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