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TMI Blog2013 (12) TMI 1420X X X X Extracts X X X X X X X X Extracts X X X X ..... e Forest Department, for permission to discharge effluents into the Tallewal drain. The Department of Environment and Forest vide letter dated 11.09.1995, prepared a proposal to allow excavation of an open drain, through forest land, to enable the assessee to discharge effluents into the Tallewal drain, subject to the following conditions: - 1. Mutation of equivalent 4.063 hec. of non-forest land identified by user agency, in which plantation has already been done, should be done in favour of State Forest Department. 2. Plantation scheme may be submitted for raising plantation on both sides of the proposed open drain for entire length, the user agency will deposit the cost of plantation and its maintenance in favour of State Forest Department. 3. Maintenance cost of plantation, as determined by Forest Deptt., already raised on non-forest land given for compensatory afforestation may be deposited with St. Forest Department. After receipt of compliance report on the fulfillment of the abovementioned conditions, from the State Government, formal approval will be issued in this regard under Section-2 of Forest (Cons) Act, 1980. Transfer of forest land to user agency shall not be af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e return was processed under Section 143(1)(a) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') and thereafter selected for scrutiny. After issuance of notices under Sections 143(2) and 142(1) of the Act, alongwith a detailed questionnaire particularly with respect to the expenditure incurred, for excavating the drain the Assessing Officer after referring to a large number of judgments recorded a finding that by constructing the drain, a benefit of enduring nature has accrued to the assessee and, therefore, Rs.70,79,862/- incurred as expenditure to excavate the drain has to be treated as capital expenditure. The assessee filed an appeal before the Commissioner of Income Tax (Appeals), Ludhiana, urging that as land diverted by the Forest Department for allowing discharge of effluents into the Tallewal drain continues to belong to Forest Department, the mere fact that the assessee has transferred land in favour of the Forest Department, or that the assessee is allowed to use the land, cannot raise an inference that expenditure incurred to excavate the drain is capital expenditure. The Commissioner of Income Tax (Appeals), reversed the order passed by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal by holding as follows: - "17.... Thus, we are of the opinion that by incurring an expenditure on the construction of drain on the forest land, the assessee has neither acquired any capital asset nor benefit of enduring nature in the commercial sense. The fact that assessee was allowed exclusive use of land for discharge of effluents was immaterial as the assessee can use such land only for a limited purpose. It is also not relevant whether the benefit for using the drain for discharge of effluents was to run for a number of years or for a short period. The expenditure incurred has neither increased the profitability of the assessee not its production. The expenditure so incurred was necessarily for the purpose of its business and is allowable as revenue expenditure. We, therefore, confirm the order of Ld. CIT(A) and dismiss this ground of appeal of the revenue." A perusal of the aforesaid findings reveals that the Income Tax Appellate Tribunal, has held that as expenditure was incurred by the assessee for its business, the fact that the assessee has exclusive use of the drain and has transferred private land does not bring a capital asset of enduring nature into existence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccess and exclusive use of forest land. In lieu thereof, the assessee has transferred land to the Forest Department. The mere fact that the transfer is not absolute or does not refer to any time frame, or does not transfer proprietary rights, is irrelevant. The assessee has incurred expense for excavating a fourteen kilometer long drain, a capital asset. The fact that the drain may be necessary for the assessee's business, is irrelevant as the assessee has created a capital asset of enduring nature that would enable the assessee to discharge effluents into the Tallewal drain, during each subsequent assessment year. The fact that discharge of effluents is necessary for the assessee's business, does not detract from the fact that the assessee has created an asset that would confer benefit of an enduring nature. It is further submitted that though the approval does not record that land is to be exclusively used by the appellant but as no-one else has been granted permission to use forest land. The land is used as a drain by the assessee alone. The fact that land has not been transferred to the respondent, is irrelevant as the nature of the approval coupled with the admitted excavation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ihar & Orissa V/s Kirkend Coal Company, 60 ITR 537; 3. Commissioner of Income-Tax, A.P.-I V/s Singareni Collieries Co. Ltd.; 121 ITR 466 4. Commissioner of Income-Tax, Bombay City-I V/s Associated Cement Companies Ltd., 172, ITR 257; 5. Commissioner of Income-Tax V/s Makhan Sarmah Savapandit, 180 ITR 35; 6. L.K.Sugar Factory and Oil Mills (P) Ltd. V/s Commissioner of Income- Tax, UP, 125, ITR 293; 7. Alembic Chemical Works Co. Ltd. V/s Commissioner of Income-Tax , Gujarat, 177 ITR 377; 8. Commissioner of Income-Tax V/s Lake Palace Hotels and Motels P . Ltd., 258, ITR 562; 9. Commissioner of Income-Tax, Bombay City-I V/s Hingir Rampur Coal Co. Ltd., 140 ITR 73; 10. Commissioner of Income-Tax, West Bengal I V/s Belgachi Tea Co . Ltd., 99 ITR 99; 11. Commissioner of Income-Tax V/s Bombay Dyeing and Manufacturing Co. Ltd., 219, ITR 521; 12. Bikaner Gypsums Ltd. Versus Commissioner of Income Tax, 187 ITR 39 13. Commissioner of Income-Tax, Baroda V/s Navsari Cotton & Silk Mills Ltd., 135 ITR 546; and 14 Commissioner of Income-Tax V/s Jayendrakumar Hiralala, 327 ITR 147. We have heard counsel for the parties perused the impugned orders, relevant statutory provisions and judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comprehensive, to draw any clear line of demarcation. However, some broad and general tests have been suggested form time to time to ascertain on which side of the line the outlay in any particular case might reasonably be held to fall. These tests are generally efficacious and serve as useful servants; but as masters they tend to be over exacting." In order to solve this riddle, whether an expense is revenue or capital, it would be necessary to peruse relevant precedents so as to ascertain whether any binding principle has been set down for determining whether an expenditure is capital or revenue. A judgment of the Hon'ble Supreme Court, in "Assam Bengal Cement V/s Commissioner of Income Tax", 1955 (27) ITR 34 (SC), may throw some light on this controversy as it lays down a test to determine whether expenditure is capital or revenue, in the following terms: - ".....The question however arises for consideration where expenditure is incurred while the business is going on and is not incurred either by extension of the business or for the substantial replacement of its equipment. Such expenditure can be looked at either from the point of view of what is acquired or from the point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possession and circulating capital is what he make profit of by parting with it and letting it change masters." (3) Expenditure relating to framework of business is generally capital expenditure." Thus, while considering whether a particular expenditure is capital or revenue in nature, we venture to hold that one would have to consider (a) the nature of the business (b) the relationship of the asset bears to the assessee's business (c) the nature and extent of expenditure (d) the rights available to the assessee viz. the asset so created (e) the ownership of the asset (f) whether the asset has resulted in an enduring benefit to the assessee (g) the amount of expenditure incurred by the assessee, and (h) whether the asset so created has relation to the profits of business, keeping in mind that these factors are merely illustrative and not exhaustive, and no one factor is conclusive or determinative of the nature of the expense. A perusal of these factors and other precedents, cited by counsel for the parties reveal that a test generally applied while determining whether expenditure is capital or revenue, succinctly put, is if the expenditure leads to acquiring or bringing into ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esult in the shutting down of its factory for violation of provisions of the statue, rules, regulations and norms framed by the Pollution Control Board. The expense incurred by the assessee has brought into existence a capital asset which the assessee shall use from year to year for discharge of effluents and would, therefore, enure to the benefit of the assessee from year to year. A Full Bench of the Kerala High Court, while considering a case where an assessee was statutorily obliged to set up a water pollution treatment plant, has held in "Commissioner of Income Tax V/s Glen View Rubber Co. (P) Ltd., (2007) 291, ITR 1, held that a water treatment plant when installed in compliance with statutory requirements, confers an enduring advantage upon the assessee and as the advantage so conferred would enure for all succeeding assessment orders, expenditure incurred on its operation and maintenance may be revenue but expenditure spent on installation of the plant confers benefit of an enduring nature and is, therefore, capital expenditure. A relevant extract reads as follows: - "7. We are of the view, when water treatment plant is installed permanently in compliance with the statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory obligations for discharge of effluents, in our considered opinion, leave no ambiguity that expense incurred upon construction of the drain for release of effluents have conferred benefit of an enduring nature upon the assessee. We, therefore, answer this question in favour of the revenue and against the appellant. The second question need not detain us for long as even otherwise, it was answered by the Division Bench in its earlier judgments. It was not interfered by the Hon'ble Supreme Court. The second question was answered in the following terms: - "The Tribunal has recorded following finding on this aspect: - "23. We have heard both the parties and carefully considered the rival submissions with reference to facts, evidence and material on record. It is a fact that the assessee had offered gross amount of interest including TDS of Rs.2,04,259/- to tax in the Assessment year 1992- 93. It is also a fact that the assessee was not allowed credit for the TDS of Rs.2,04,259/- for want of TDS Certificates. It is also a fact that inspite of best efforts, the assessee could not obtain TDS certificates. Thus, it was a case of loss which has arisen to the assessee during the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X
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