Commissioner of Income Tax Vs. Hindustan Zinc Ltd. - Court Judgment

Excerpt:

.....269 itr 369 (raj) interest paid on borrowed money used by assessee for establishing new plant was allowable as revenue expenditure. income tax act, 1961 section 36(1)(iii) capital or revenue expenditure--expenditure on technology alteration for new unit assessee assessable at flat rate and no financial loss either to assessee or revenue--assessee claimed the expenditure incurred on technology alteration for new plant as revenue expenditure, however, lower authorities treated the same as capital expenditure. held: if the contention of assessee to treat the expenditure incurred on technology alteration for new plant as revenue expenditure was accepted even in that event, assessee was entitled to deduction in one assessment year, relevant to previous year, in which the expenditure was incurred, while if even if it is treated to be capital expenditure, in that event also, the assessee had received the benefit of tax, by being allowed depreciation over a period of eight years. assessee was assessable at uniform rate and was allowed for depreciation on the amount claimed as revenue expenditure at the rate of 12.5 per cent over a period of eight years treating the same as capital..........6th nov., 2001, the appeal was admitted vide order dt. 16th sept., 2003 by framing following three substantial questions of law:(1) whether on the facts and in the circumstances of the case the tribunal was justified in deleting the disallowance of rs. 1,77,16,044 made under section 40a(9) of the it act on account of payment made to various funds, contributions of clubs, grant to school and hospital etc.?(2) whether on the facts and in the circumstances of the case the tribunal was justified in allowing the claim of interest amounting to rs. 18,56,32,417 as revenue expenditure on funds borrowed specifically for the new plant known as chandaria unit?(3) whether on the fact and in the circumstances of the case the tribunal was justified in holding the expenditure of rs. 1,58,77,000 incurred on technology alternation prior of new unit as revenue expenditure and even if it is held to be so the same was not allowable being it an abortive expenditure because of the fact that the amount was paid as a damage to the contractor as the technology was not found suitable and the contact stood cancelled before the production was established?2. we have heard learned counsel for the parties on.....

Judgment:

ORDER

1. This appeal has been filed against the judgment of learned Tribunal, Jodhpur Bench dt. 6th Nov., 2001, the appeal was admitted vide order dt. 16th Sept., 2003 by framing following three substantial questions of law:

(1) Whether on the facts and in the circumstances of the case the Tribunal was justified in deleting the disallowance of Rs. 1,77,16,044 made under Section 40A(9) of the IT Act on account of payment made to various funds, contributions of clubs, grant to school and hospital etc.?

(2) Whether on the facts and in the circumstances of the case the Tribunal was justified in allowing the claim of interest amounting to Rs. 18,56,32,417 as revenue expenditure on funds borrowed specifically for the new plant known as Chandaria unit?

(3) Whether on the fact and in the circumstances of the case the Tribunal was justified in holding the expenditure of Rs. 1,58,77,000 incurred on technology alternation prior of new unit as revenue expenditure and even if it is held to be so the same was not allowable being it an abortive expenditure because of the fact that the amount was paid as a damage to the contractor as the technology was not found suitable and the contact stood cancelled before the production was established?

2. We have heard learned Counsel for the parties on all the three questions and have perused the impugned judgment of the learned Tribunal.

3. So far as the question No. 1 is concerned, the matter had earlier come before this Court in the case of present assessee, of course relating to different assessment years, and that matter was decided by this Court vide judgment dt. 14th Dec., 2004, reported in CIT v. Hindustan Zinc Ltd. (2005) 194 CTR (Raj) 121, and by that judgment, the orders of the Tribunal were set aside, and the matter was remitted back to the Tribunal for deciding the claim afresh.

4. In our view, in view of the aforesaid judgment of this Court, the matter is required to be remitted back to the Tribunal for deciding this question No. 1 afresh on lines given in the aforesaid judgment dt. 14th Dec, 2004.

5. So far as question No. 2 is concerned, this question stands already decided against Revenue by another judgment of this Court on 17th July, 2003 in the case of present assessee itself, rendered with respect to the controversy involved in different assessment years. This judgment is reported in CAT v. Hindustan Zinc Ltd. . For the reason given in the aforesaid judgment, in our view, this question is also required to be answered against the Revenue, and is accordingly, answered.

6. So far as question No. 3 is concerned, the learned Tribunal itself has observed that in view of the orders of the subordinate authorities, the amount was treated as capital expenditure, and the assessee was allowed for depreciation on this amount @ of 12.5 per cent over a period of eight years. If the contention of assessee is accepted, to treat as revenue expenditure, even in that event, the assessee would have been entitled to deduction in one assessment year, relevant to the previous year, in which the expenditure was incurred, while if even if it is, treated to be capital expenditure, in that event also, the assessee has received the benefit of tax, by being allowed depreciation over a period of eight years. It has also been found by the learned Tribunal that rate of tax on the company is uniform.

7. Obviously, therefore, even if, the tax benefit allowed to the assessee in 1 year, or over a period of eight years, it hardly results into financial loss to either the assessee or the Revenue.

8. We are of the view that thus this question remains only academic, and need not be decided in this appeal. It is however clarified that since we are not deciding the question on merits, the finding given by the learned Tribunal about the particular expenditure being that of a capital expenditure, need not be treated as precedent. The appeal is, accordingly partly allowed, in view of the answer given to question No. 1, and the matter is remitted back to learned Tribunal as above.