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TMI Blog2019 (1) TMI 1141X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the spreading over of the liability incurred in that year, to the 20 years in which the right would have been retained by the assessee was proper and is a revenue expenditure. Herein though there was an extinguishment of right there was no such extinguishment of a right created in a capital asset. In fact, the earlier year also when the assessee had acquired rights for 20 years and the liability for the entire years was met by the assessee in that particular year, we found the assessee entitled to claim the same as revenue expenditure. There was no acquisition of a capital asset or a right of a permanent character. There was found justification in the spreading over of the liability in the 20 years in which the right to operate in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me into the twenty years for which the right was obtained. For the first year, being the assessment year 2000-01, the assessee claimed ₹ 8,75,000/- as revenue expenditure. The Assessing Officer [for brevity AO ] declined the claim and treated it as a capital expenditure. The assessee was in appeal before the first appellate authority; who allowed the claim of the assessee relying on the decision of the Hon'ble Supreme Court in Madras Industrial Investment Corporation Ltd. v . C.I.T . [ ( 1997) 225 ITR 802 (SC ) ] and Empire Jute Co. Ltd . v . C.I.T. [ ( 1980) 124 ITR 1 (SC ) ] . The Revenue was in appeal before the Tribunal, which considered the issue along with the appeals arising from the next year. 4. Admittedl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of law as arising in the respective years: ( i) Whether the Tribunal was right in having affirmed the view of the first appellate authority that for the assessment year 2000-01 that ₹ 8,75,000/- could be treated as revenue expenditure on the ground of deferred liability for the twenty years, fully paid in that assessment year? ( ii) Whether the Tribunal was correct in having found the claim of ₹ 1,66,25,000/-, being the loss suffered on account of the cancellation of the agreement of right to transfer, for the assessment year 2001-02, as allowable revenue expenditure? 6. The learned Counsel for the assessee asserts that there is absolutely no conflict in the decision of the Tribunal. It is pointed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be of a capital nature. On the question of a decision on whether an expenditure is a revenue expenditure or capital expenditure, the Supreme Court found that it has to be determined on a consideration of all the facts and circumstances and the application of the principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, then it may be regarded as an integral part of the profit making process and not for acquisition of an asset or a right of a permanent character; the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as a revenue ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a measure adopted to increase the profitability of the business and hence was held to be a revenue expenditure. 9. Applying the aforesaid principles for the assessment year 2000-2001, we have to find that the spreading over of the amounts, paid as license fees for the purpose of managing a berth in the Port, was perfectly justified, especially looking at the fact that the liability incurred was for the purpose of retaining such rights over a period of 20 years. In the subject year, the assessee had a reasonable expectation of continuing the right obtained for a period of 20 years and hence the spreading over of the liability incurred in that year, to the 20 years in which the right would have been retained by the assessee was proper and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1991) 191 ITR 647]. We need not refer to the decision in Vania Silk Mills P.Ltd., since the declaration made therein by a two Judge Bench has been disapproved by the three Judge Bench in Mrs.Grace Collis. 12. The assessee therein, Mrs.Grace Collis, had sold certain shares held in a company to the company to which there was an amalgamation. The assessee held shares in Company A which was the amalgamating company, which were transferred to Company C being the amalgamated company. The Assessing Officer in the context of the assessee having not disclosed the cost at which she had acquired shares, took the face value of the shares as cost of acquisition. On amalgamation, as per the terms agreed into between the two companies; one share ..... X X X X Extracts X X X X X X X X Extracts X X X X
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