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TMI Blog2014 (11) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... lines and contribution paid to the Uttar Pradesh Power Corporation Limited disallowed – Capital expenses or not - Held that:- In Empire Jute Co Ltd Vs Commissioner of Income Tax [1980 (5) TMI 1 - SUPREME Court] it has been held that the true test is to consider the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable - the expenditure which was incurred by the assessee in the laying of transmission lines was clearly on the revenue account - Upon the erection of transmission lines, they were to vest absolutely in UPPCL - 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 UPPCL - This was not an advantage of a capital nature – thus, the order of the Tribunal is upheld – Decided against revenue. - Income Tax Appeal No. - 220 of 2014 - - - Dated:- 5-11-2014 - Hon'ble Dr. Dhananjaya Yeshwant Chandrachud, CJ And Hon'ble Pradeep Kumar Singh Baghel,JJ. For the Appellant : Dhananjay Awasthi For the Respondent : Suyash Agrawal ORDER This appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivable on these investments did not form part of the total income. Holding that certain expenses, such as on account of interest, were directly attributable to the exempt income, the Assessing Officer came to the conclusion that such expenditure could not have been debited to the profit and loss account in view of the provisions of Section 14A of the Act. The Assessing Officer made a disallowance of ₹ 67.75 lacs. In appeal, the Commissioner (Appeals) deleted the disallowance. The Commissioner (Appeals) observed that certain shares of Kashipur Sugar Mills Ltd were acquired in 1993 out of the own funds of the assessee. The term loans on which interest was paid during the year under consideration were received for specific purposes and the cash credit account was used for the working capital of the business. Hence, it was held that a disallowance under Section 14A read with Rule 8D of the Rules could not be justified. In regard to the investment which was made by the assessee in Dhampur Distillery Pvt Ltd, the Commissioner (Appeals) held that there was no material which would establish that the investment in shares was made out of interest bearing funds but that it was made from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot sustainable. In the appeal, the Tribunal has confirmed the finding. The Tribunal has observed that the findings of the Commissioner (Appeals) were not controverted on behalf of the revenue. Once it was duly established that no borrowed funds on which interest was paid had been invested for earning tax free income, no disallowance was permissible under Section 14A. The Tribunal has observed that under Rule 8D(2)(ii), a proportionate disallownace out of interest expenditure would be made in respect of interest expenditure which is not directly attributable to any particular income or receipt. Since the entire interest expenditure, in the present case, was attributable to business in which the resultant income was assessable to tax, a disallowance could not be made. The Tribunal, consequently, deleted a disallowance to the extent of ₹ 66.79 lacs out of a total disallowance of ₹ 67.75 lacs made by the Assessing Officer under Section 14A, sustaining the balance of ₹ 0.96 lacs on account of other expenditure to the extent of 0.5 percent of the average value of investment. The order of the Tribunal in regard to the disallowance of ₹ 0.96 lacs has been confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is covered by Income Tax Reference No.65 of 1996, CIT v. Dhampur Sugar Mills Ltd., Bijnor decided on 28.04.2005 inter party. The question is decided in favour of the assessee and against the revenue. The learned counsel appearing on behalf of the revenue has been unable to make any distinction that would warrant this Court to take a different view for the year under consideration. Re Question No 3 The principal bone of contention in the appeal has been in relation to this issue. During the year under consideration, the assessee made a payment of ₹ 8.48 crores to UPPCL towards the construction of a transmission line and other supporting work. The assessee started generating power which had to be sold to UPPCL which was the only customer. Agreements were entered into by the assessee in similar terms on 11 August 2006 in relation to its three units which stipulated that the entire expenditure for erection and installation of power transmission lines, towers and ancillaries from the point of power generation to the Sub Grid Station would be incurred by the assessee. UPPCL was to ensure quality control of the equipment and material and the work was to be carried out sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. lt is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assesse's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case... In other words, 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. The same principle was laid down in a decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he test laid down by the Supreme Court in Empire Jute Co's case (1980) 124 ITR 1 to the facts before us, it is clear that even if securing electric supply for a period of seven years and longer, if the agreement to supply is not terminated by the Electricity Board, is a benefit of an enduring nature, if the advantage consisted in facilitating the assessee's trading operation and enabled the assessee to conduct its business more efficiently and more profitably, then the expenditure would still be on revenue account and not on capital account. The peculiar feature in this case is that the amount was spent for securing electric supply for the Beneficiation Plant which was intended to enable the assessee-company to carry on its business more efficiently and more profitably. It was a business which was being previously carried on by the assessee-company, namely of extracting fluorspar ore and selling it but in order to enable it to carry on that business more efficiently and more profitably, the Beneficiation Plant was proposed to be installed and the electric cables and supply lines were laid or that Beneficiation Plant as has been pointed out by the Tribunal in its order. Once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bridge. The facts of this case are such as to bring it within the ratio of the decision in the case of L. H. Sugar Factory and Oil Mills (P) Ltd. v. CIT, (1980) 125 ITR 293 (SC). We, therefore, do not see any justification for calling for a reference. The Tribunal has rightly held that the amount is to be treated as revenue expenditure. The assessment year is 1991-92. The petitions are dismissed. Similarly, in a judgment of the Rajasthan High Court in Commissioner of Income Tax Vs Hindustan Zinc Ltd (2009) 221 CTR 637, it was held that the erection of power lines by the assessee was for facilitating its routine operations and for smooth functioning of its business. The power lines remained the property of the Electricity Board. The Rajasthan High Court came to the conclusion that the assessee had not acquired a capital asset or any enduring benefit or advantage. Following the principle of law which has been laid down by the Supreme Court, we hold that the expenditure which was incurred by the assessee in the laying of transmission lines was clearly on the revenue account. Upon the erection of transmission lines, they were to vest absolutely in UPPCL. The expenditure whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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