Madras High Court
The Commissioner Of Income Tax vs M/S.Bannari Amman Sugars Ltd on 6 September, 2022
Bench: S.Vaidyanathan, C.Saravanan
T.C.(A) Nos.140 and 22 of 2010
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 06.09.2022
CORAM
THE HONOURABLE MR.JUSTICE S.VAIDYANATHAN
and
THE HONOURABLE MR. JUSTICE C.SARAVANAN
T.C.(A) Nos.140 and 22 of 2010
The Commissioner of Income Tax,
Chennai. ....appellant in both the appeal
vs
M/s.Bannari Amman Sugars Ltd.,
252, Mettupalayam Road,
Coimbatore 641 043. ...respondent in both the appeal
Prayer in TC(A).No.140 of 2010: Appeal filed under Section 260-A
of the Income Tax against the order dated 29.06.2007 passed by the Income
Tax Appellate Tribunal in I.T.A.No.1349/Mds/2005.
Prayer in TC(A).No.22 of 2010: Appeal filed under Section 260-A
of the Income Tax against the order dated 29.06.2007 passed by the Income
Tax Appellate Tribunal in I.T.A.No.354/Mds/2004.
Appellant : Mr.M.Swaminathan and Ms.V.Pushpa
(in both the appeal)
Respondent : Mr.R.Vijayaraghavan
(in both the appeal)
https://www.mhc.tn.gov.in/judis
Page No.1/13
T.C.(A) Nos.140 and 22 of 2010
COMMON JUDGMENT
[Judgment of the Court was delivered by C.SARAVANAN, J] The Revenue has filed these appeals challenging the orders dated 29.06.2007 passed by the Income Tax Appellate Tribunal.
2. The Revenue has filed T.C.A.No.22 of 2010 raising the following questions of law:
"1. Whether on the facts and circumstances of the case, the Tribunal was right in holding that excess realization of levy price on sale of incentive sugar is to be treated as capital receipt and accordingly excluded the incentive sugar from valuation of closing stock?
2. Whether on the facts and circumstances of the case, the Tribunal was right in excluding the incentive sugar from valuation of closing stock?
3. Whether on the facts and circumstances of the case, the Tribunal was right in treating the expenses in connection with construction and handing over of transmission lines/substation to Karnataka Government was treated as revenue expenditure?
4. Whether on the facts and circumstances of the case, the https://www.mhc.tn.gov.in/judis Page No.2/13 T.C.(A) Nos.140 and 22 of 2010 Tribunal was right in holding that the date on which the advance tax cheque was tendered to the bank for payment i.e., 15.06.2000 had to be taken for consideration and accordingly the date of clearance being 16.6.2000 cannot be taken and accordingly levy of interest u/s 234C is not warranted?"
3. This Court by order dated 22.03.2010 admitted the appeal in T.C.A.No.22 of 2010 on the third question alone and held as follows:
Questions 1 and 2 are covered by the decision in the assessee's own case against the Revenue in T.C.(A).Nos.582and 583 of 1995. Question No.4 is already decided in 128 ITR 617 (Commissioner of Income-tax, Tamil Nadu-I vs. Kumudam Publications (P) Ltd.). Hence, this Tax Case Appeal is admitted on the third question alone.
4. Similarly, in TCA.No.140 of 2010, this Court admitted the appeal on the above said third question of law.
5. When the appeals were taken for hearing today, both the learned counsel appearing for the appellant and the respondent submitted that the question of law framed in these appeals, has now been answered by the https://www.mhc.tn.gov.in/judis Page No.3/13 T.C.(A) Nos.140 and 22 of 2010 Hon'ble Division Bench of the Allahabad High Court in the case of Additional Commissioner of Income-tax, Bareilly vs. Dhampur Sugar Mill (P.) Ltd., reported in [2015] 370 ITR 194 (Allahabad), when an identical issue came up before them. The relevant paragraphs of the said judgment is extracted hereunder:
"Re Question No 3
6.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 Rs 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 subject to the its supervision and prior approval. The agreement stipulated that the entire power transmission line including the towers, after erection, would be the property of UPPCL which would provide for the subsequent supervision and maintenance. The assessee https://www.mhc.tn.gov.in/judis Page No.4/13 T.C.(A) Nos.140 and 22 of 2010 claimed the entire expenditure as a deduction under Section 37(1). The Assessing Officer held that, in the present case, since the work of the transmission line and other ancillary work was carried out at the business premises of the assessee and it could not be used by any other person except the assessee, it was absolutely clear that it would be the property of the assessee. On this ground, the Assessing Officer made a disallowance. The Commissioner (Appeals), while deleting the disallowance, observed as follows:
"As discussed above, the assessee has right to use the power line for transmitting power generated in its factory to UPPCL but it would not enjoy ownership right on the asset. The ownership on the asset would be with UPPCL in future. Thus, the assessee acquired right to make use of the asset for facilitating efficient conduct of its business and making it more profitable but without getting any advantage of enduring benefit to itself. He did not acquire any asset as envisaged in Section 32 of the Act. Therefore, the expenditure incurred was of revenue nature..."
7. The view of the Commissioner (Appeals) has been confirmed by the Tribunal.
8. Now, it is trite law as laid down by the House of Lords in British Insulated and Helsby Cables Ltd Vs Atherton [1925] 10 TC 155 (HL), that where an expenditure is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there is very good reason, in the absence of special https://www.mhc.tn.gov.in/judis Page No.5/13 T.C.(A) Nos.140 and 22 of 2010 circumstances leading to an opposite conclusion, to treat it as an expenditure properly attributable not to revenue but to capital.
9. In Empire Jute Co Ltd Vs Commissioner of Income Tax [1980] 124 ITR 1/3 Taxman 69, the Supreme Court 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:
"...There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. 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..."
https://www.mhc.tn.gov.in/judis Page No.6/13 T.C.(A) Nos.140 and 22 of 2010
10. 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 L H Sugar Factory and Oil Mills (P) Ltd Vs Commissioner of Income Tax [1980] 125 ITR 293/4 Taxman 5 (SC), where before the Supreme Court, there was a case in which the assessee had made a contribution for meeting the cost of construction of roads in the area around its sugar factory under a sugarcane development scheme. The Supreme Court held as follows:
"Now it is clear on the facts of the present case that by spending the amount of Rs 50,000, the assessee did not acquire any asset of an enduring nature. The roads which were constructed around the factory with the help of the amount of Rs 50,000 contributed by the assessee belonged to the Government of Uttar Pradesh and not to the assessee. Moreover, it was only a part of the cost of construction of these roads that was contributed..."
11.This decision was sought to be distinguished on behalf of the revenue by contending that in that case, only a part of the expenditure was contributed by the assessee. We are unable to make any distinction based on that ground. The true test is whether the expenditure which has been incurred by the assessee is for the purpose of obtaining a commercial advantage in the capital field. In the present case, it is clearly https://www.mhc.tn.gov.in/judis Page No.7/13 T.C.(A) Nos.140 and 22 of 2010 evident that the power transmission lines which were laid by the assessee were, upon erection, to constitute the exclusive property of UPPCL. UPPCL was the only consumer of the electricity generated by the assessee.. The assessee incurred the expenditure to facilitate its own business. The fixed capital of the assessee was untouched and there was no capital accretion for the assessee. This was exactly the position before the Supreme Court in L H Sugar Factory (supra).
12. At this stage, it would be appropriate for the Court to also make a reference to a decision of the Gujarat High Court in Commissioner of Income Tax Vs Gujarat Mineral Development Corporation [1981] 132 ITR 377/[1980] 4 Taxman 526 where the assessee had laid out an expenditure which was paid over to the Gujarat Electricity Board for laying electric transmission lines and other ancillary facilities. The Gujarat High Court took note of the fact that the transmission lines were to be the property of the Board and that the assessee was not acquiring a benefit of an enduring nature. Applying the test laid down by the Supreme Court in Empire Jute Co Ltd (supra), the Gujarat High Court held as follows:
"Applying the 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 https://www.mhc.tn.gov.in/judis Page No.8/13 T.C.(A) Nos.140 and 22 of 2010 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 the purpose of the Beneficiation Plant is properly understood, it is obvious that the advantage consisted merely in facilitating the conduct of the assessee's business and enabling the assessee to carry on its business more efficiently and more profitably but the capital, in the sense of the block capital was remaining untouched by the expenditure of this amount of Rs 2046 lakhs Hence, in the commercial sense, it was not an advantage in the capital field. Since it left the fixed capital of the assessee employed for the main business of mining untouched and the advantage was not in the capital field, it could not be said to be an expenditure of a capital nature. As we have pointed out, while arriving at this conclusion, we are prepared to proceed on the footing that the advantage which the assessee-company got was https://www.mhc.tn.gov.in/judis Page No.9/13 T.C.(A) Nos.140 and 22 of 2010 an advantage of an enduring nature, but applying the test culled out by the Supreme Court in Empire Jute Co's case (1980) 124 ITR 1, it is obvious that, in spite of the presumption, it can be held on the facts and circumstances of this case that the expenditure was not of a capital nature but was of a revenue nature."
13.The decision of the Gujarat High Court has been confirmed by the Supreme Court in Commissioner of Income Tax Vs Gujarat Mineral Development Corporation. [2001] 249 ITR 787/119 Taxman 277. A similar principle has been laid down in a Division Bench judgment of the Madras High Court in Commissioner of Income Tax Vs Coats Viyella India Ltd. [2002] 253 ITR 667/124 Taxman 797, where the expenditure incurred by the assessee by way contribution to the government for building a new bridge for providing access to the factory of the assessee was held to be on the revenue account. The Madras High Court held as follows:
Here, the bridge is one, which is built across the river. The bridge is not owned by assessee. It is built by the government, and the assessee does not acquire any rights of ownership over the bridge in the short-term or in the long run by reason of the contribution that it agreed to pay towards the construction of the bridge. So far as the assessee is concerned, the payment made is an outgo in return for which it receives no https://www.mhc.tn.gov.in/judis Page No.10/13 T.C.(A) Nos.140 and 22 of 2010 addition to the value of any of the assets owned by it. The bridge merely facilitates the movement of the workmen to gain access to the assessee's factory and to return home, and also for the movement of the goods over 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."
14. Similarly, in a judgment of the Rajasthan High Court in Commissioner of Income Tax Vs Hindustan Zinc Ltd [IT Appeal No. of 2002, dated 30.01.2009], 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.
15. 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 https://www.mhc.tn.gov.in/judis Page No.11/13 T.C.(A) Nos.140 and 22 of 2010 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. The Tribunal was, in these circumstances, correct in affirming the view of the Commissioner (Appeals)."
6. Considering the fact that the question of law raised in these appeals has already been answered in favour of the asseessee in similar appeal referred to above, we are inclined to dismiss these appeals preferred by the Revenue. Accordingly, these appeals are dismissed. No costs.
(S.V.N.J.,) (C.S.N.J.,)
06.09.2022
Index : Yes / No
Speaking order: Yes/No
pvs
https://www.mhc.tn.gov.in/judis
Page No.12/13
T.C.(A) Nos.140 and 22 of 2010
S.VAIDYANATHAN, J.
and
C.SARAVANAN, J.
pvs
T.C.(A) Nos.140 and 22 of 2010
06.09.2022
https://www.mhc.tn.gov.in/judis
Page No.13/13