9911796707
TMI Blog2003 (7) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... us technical services for setting up the cement plant, to be a revenue expenditure on the ground that the main business of the assessee is to manufacture the asbestos sheets. The assessee wanted to set up the mini cement plant for feeding the existing need of the asbestos plant and in the process has incurred the expenses in connection with survey and feasibility report and various technical services for setting up the mini cement plant, which of course, would not materialise as the Government has not permitted setting up of the mini cement plant. As per the assessee, the proposed cement plant was completely interconnected with the existing business of manufacture of the asbestos sheets and the two businesses, namely, manufacture of asbestos sheets and the production of cement, which is the main raw material for manufacture of the asbestos sheets, are so interconnected as to treat them as one and the same business of the assessee. The expenditure incurred by the assessee for the ground work to set up the mini cement plant is for the purposes of carrying on the business more usefully and thus should be allowed as a revenue expenditure. The Assessing Officer has held that the expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed mini cement plant it was held by the Tribunal that it appears from the record that the assessee has incurred the expenses for searching the site and preparing the feasibility report for setting up a mini cement plant. From the record it appears that the intention for the proposed mini plant was not to sell the cement in the market but was to supply the cement as a raw material to the main plant. So it is to be considered as an ancillary of the main plant. The Tribunal has accepted the finding of the Commissioner of Income-tax (Appeals) that both units were under common management and common funds and common account and so they cannot be treated as a separate business of the assessee. The Tribunal found no infirmity in the order of the Commissioner of Income-tax (Appeals) who had treated the said expenditure as revenue in nature and the order of the Commissioner of Income-tax (Appeals) was upheld. Aggrieved, the Revenue preferred further appeal in the High Court and the following substantial questions of law were framed: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified and correct in law in confirming the order of the first appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n utilised by the assessee, before determination of the question whether it is capital subsidy or revenue subsidy. In the absence of any decision of any of the taxing authorities on the purpose for which the subsidy is given and utilisation of the subsidy by the assessee, the nature of receipt cannot be ascertained. The decision given by the taxing authorities in the matter of subsidy, is a decision without there being any factual foundation, and thus we feel it necessary to remand the case to the assessing authority to consider the question of subsidy in the light of the decision in Sahney Steel and Press Works Ltd.'s case [1997] 228 ITR 253 (SC). We now propose to take up the second question whether the expenditure incurred towards project prospecting expenses would be a revenue expenditure, for it is necessary for us to determine the nature and the purpose of the expenditure incurred. The apex court in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 has drawn a fine distinction between revenue expenditure and capital expenditure. It is held that in cases where the expenditure is made for initial outlay or for extension of a business or a substantial replacement of the equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a question of fact and normally shall not be disturbed by the court in appeal. In Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, the apex court has further elaborated the nature of expenditure incurred by the assessee and said there may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It 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 assessee'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 tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing unit can be carried out more efficiently or more profitably by setting up the mini cement plant. It is apparent that the feasibility report has not brought into being new fixed capital, simple preparation of the feasibility report for a mini cement plant would not result in bringing into existence a new capital. Preparation of the feasibility report is to find out the viability of establishment of a mini cement plant, which in turn would supply and maintain consistent supply of raw material to the already established asbestos plant of the assessee. The endeavour was made so as to find out ways and means to carry on the assessee's business more profitably and more efficiently, in the world of competition such exercises are required to be undertaken by businessman to withstand competition and would certainly be expenditure incurred to meet business necessity and expediency. The expenses incurred by the assessee for preparation of the feasibility report to bring into existence the mini cement plant would be of revenue nature and, therefore, in our opinion, the assessee is entitled to deduct the expenses incurred. The question is answered accordingly. For the reasons stated a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
