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TMI Blog2010 (6) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount in question was sanctioned by the Government of A.P. as capital subsidy. Hence the entire amount of ₹ 7.83 crores was spent in the year in question out of the said capital subsidy sanctioned by the Government of A.P. and debited to the Profit and Loss Account under various heads according to the Assessing Officer, was disallowed and added back treating it as capital expenditure. On appeal, the Commissioner of Income-tax (Appeals) granted relief to the assessee sustaining its claim. Hence the instant second appeal by the revenue before us. 3. The learned representative for the revenue submitted that. The appellate Commissioner erred in holding that the expenditure of ₹ 7,83,13,000 incurred by the assessee for rectification and improvement of damaged power lines is in the nature of current repairs and allowable as revenue expenditure. He ought to have appreciated that the expenditure in question was incurred out of the capital subsidy received from the Government of A.P. and hence the expenditure is in the nature of capital as there is an enduring benefit from the expenditure. In other words, the appellate Commissioner ought to have considered the State subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f capital subsidy received besides also speaking of 50 per cent expenditure incurred on revenue account and the balance 50 per cent on capital account. The finding of the Assessing Officer is impugned by the assessee contending that there is no such claim made before the Assessing Officer during the assessment proceedings. The Commissioner (Appeals) further stated that verification of the record also indicate that the stand taken by the Assessing Officer is not borne out of fact. The appellate Commissioner has viewed that the finding of the Assessing Officer cannot be held as correct. He opined that what is required to be seen is as to whether the expenditure is of revenue nature or of capital nature. The Commissioner of Income-tax (Appeals) has clearly stated that the Assessing Officer himself speaks of rectification and improvement of power lines damaged due to cyclone for which the expenditure was incurred. Therefore, the Commissioner (Appeals) held that itself goes to show that the expenditure was in the nature of current repairs which are allowable as revenue expenditure besides observing that it is immaterial to debate from what source and what head the money was drawn for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital field as here is an enduring benefit from the expenditure. (iv) The ld.CIT(A) having observed that the expenditure is revenue expenditure, ought to have held that subsidy received by the assessee is revenue receipt in view of the decision of the Hon ble Supreme Court in case of the Sahney Steel Press Works Ltd. (supra). (v) Any other ground that may be urged at the time of hearing. Ground Nos. 2 and 3 relating to the issue as to whether the impugned expenditure should be considered as revenue expenditure, I am in agreement with the finding of the ld.Vice President in view of the overwhelming case laws in favour of the same. 3.1 In view of the above, we have to dispose off the alternative contention raised by the revenue vide ground No. 4 viz., whether the subsidy granted by the State Government to the assessee for carrying out such work would be taxable in view of Honourable Supreme Court s decision in the case of Sahney Steel Press Works Ltd. (supra). The above ground is very much within the subject matter of appeal in view of the Apex Court decision in the case of CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710(SC). 3.2 It is not in dispute t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her on the basis of the same, revenue s appeal could be allowed. THIRD MEMBER ORDER Per G.C. Gupta, Vice President (As a Third Member). On account of difference of opinion between the Hon ble Vice-President and Hon ble Accountant Member of the Hyderabad Bench, this matter has been referred to me by the Hon ble President for consideration and disposal under section 255(4) of the Income-tax Act, 1961. The learned Vice President has proposed the following question :- Whether on the facts and in the circumstances of the case, the expenditure of ₹ 7.83 crores incurred out of capital subsidy of ₹ 850 lakhs sanctioned in favour of the assessee by the Govt. of A.P. on rectification and improvement of power lines damaged due to cyclone is not allowable as deduction though it is a revenue expenditure because it is spent out of a capital subsidy received from the State Government . 2. However, in view of the Learned Accountant Member, in addition to the question proposed by the Hon ble Vice President, the following question does arise as point of difference between him and the Hon ble Vice-President :- Whether ground No. 4 taken by the revenue arise and whether o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowable as revenue expenditure. (iii) The learned CIT(A) ought to have appreciated that the expenditure in question was incurred out of the capital subsidy received from the Government of A.P. and hence the expenditure is in the capital field as there is an enduring benefit from the expenditure. (iv) The learned CIT(A) having observed that the expenditure is revenue expenditure, ought to have held that the subsidy received by the assessee is revenue receipt in view of the decision of the Hon ble Supreme Court in the case of CIT v. Sahney Steel Press Works Ltd. Others ( 228 ITR 253). (v) Any other ground that may be urged at the time of hearing . 5. The Tribunal constituted by the Hon ble Vice-President and the Hon ble Accountant Member vide order dated 21-8-2006 in ITA No. 41/Hyd./2003 held that there seems to be no infirmity in the order of the CIT(A) as the reasoning arrived at by the CIT(A) is convincing as strong and sound unlike the stand of the revenue that was attempted to be highlighted by its learned representative and dismiss the appeal of the revenue. However, the learned Accountant Member held that though he agree with the learned Vice-President that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in nature. She submitted that since the expenditure has been held as revenue in nature, it is natural that the amount of subsidy received by the assessee would also be revenue in nature. She submitted that the source from where the money was drawn by the assessee was very much material and the CIT(A) has misdirected himself by holding that it is immaterial to debate from what source and what head the money was drawn for current repairs. She submitted that harmonious view should be adopted by the Tribunal while deciding the ground of appeal No. 4 before it. She submitted that purpose for which the amount of subsidy was given to the assessee shall determine the character of the receipt by the assessee. She submitted that the issue is covered in favour of the revenue with the decision of the Hon ble Supreme Court in the case of Sahney Steel Press Works Ltd. (supra) and CIT v. Abhishek Industries Ltd. [2006] 286 ITR 1(Punj. Har.). She submitted that this decision of the Hon ble Supreme Court in the case of Sahney Steel Press Works Ltd. (supra) was followed in a number of decisions by various Hon ble Courts. She submitted that the view of the learned Accountant Member that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant accounting period the assessee has spent a sum of ₹ 7.83 crores on cyclone etc., damages. The Assessing Officer has recorded that the assessee has claimed that out of this expenditure 50 per cent thereof has been incurred on revenue account and the balance 50 per cent of the capital account. The Assessing Officer did not accept the claim of the assessee and the entire amount spent by the assessee was disallowed and added back treating the same as capital expenditure. In appeal, the CIT(A) decided the issue in favour of the assessee and directed the Assessing Officer to allow the amount spent by the assessee as revenue expenditure. The revenue filed the appeal before the Tribunal and raised 5 grounds of appeal reproduced by me in preceding para 4 of this order. The Tribunal constituted by the learned Vice-President and the learned Accountant Member vide their order dated 21-8-2006 upheld the order of the CIT(A) and the revenue s appeal was dismissed. However, the learned Accountant Member held that though he agree with the learned Vice-President that the amount of ₹ 7.83 crores spent for rectification and improvement of power line should be held as revenue expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted only to the question/questions referred to it by the Members constituting the Bench on which there was a difference of opinion between them. In my considered opinion, the expenditure incurred by the assessee on rectification and improvement of power line was held as revenue expenditure by both the learned Vice-President and by the learned Accountant Member and there was no real difference of opinion between them on this issue. The character of the expenditure shall not change merely because it was spent out of a subsidy amount received from the State Government. In this case before me there is no dispute that the expenditure incurred by the assessee on rectification and improvement of power line was revenue in nature and accordingly the source of the fund being quite immaterial, shall not change the nature of the expenditure incurred by the assessee and is accordingly held as a revenue expenditure in the hands of the assessee and the first question referred to me is answered accordingly. 12. The other question referred to me as Third Member is reproduced hereunder : Whether ground No. 4 taken by the revenue arise and whether on the basis of the same, revenue s appeal cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pex Court has been followed by the Hon ble Courts in number of cases. In the case before me, the assessee itself has claimed that the expenditure incurred was of revenue in nature and no new asset has came into existence which could be said to be of enduring benefit to it. The contention of the assessee has been accepted by the CIT(A) as well as the Tribunal and it has been held that the entire expenditure of ₹ 7.83 crores was revenue in nature. The amount of ₹ 7.83 crores spent by the assessee for rectification and improvement of power line was admittedly out of the amount of subsidy received by the assessee from the State Government with the clear understanding that the amount granted as subsidy to the assessee shall be utilized by the assessee for rectification and improvement of power line and accordingly it is quite logical that the amount of subsidy received by the assessee for spending on items held as revenue in nature, was a revenue receipt in the hands of the assessee. The decision of the Hon ble Supreme Court in Sahney Steel Press Works Ltd. s case (supra) applies to the case of the assessee. I am not impressed with the submission of the learned Counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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