M/S Budge Budge Company Ltd. Vs. The Commissioner of Income Tax - Court Judgment

SooperKanoon Citationsooperkanoon.com/51411
CourtKolkata High Court
Decided OnMay-13-2015
JudgeGirish Chandra Gupta
AppellantM/S Budge Budge Company Ltd.
RespondentThe Commissioner of Income Tax
Excerpt:
form no.(j2) in the high court at calcutta special jurisdiction ( income tax) original side present: the hon’ble justice girish chandra gupta & the hon’ble justice arindam sinha income tax appeal no.175 of 2005 m/s budge budge company ltd.versus the commissioner of income tax for the appellant: mr.ananda sen, adv.for the respondent: mr.r.k.sinha, adv.heard on : 12.03.2015 & 02.04.2015 judgment on: 13th may, 2015 arindam sinha j. : the appellant assessee has preferred this appeal against a judgment dated 31st december, 2004 pertaining to the assessment year 199293 by which the learned appellate tribunal dismissed both grounds of appeal of the assessee in upholding the order of the assessing officer as confirmed by the cit(a).the appeal before us was admitted on the following questions:“i) whether on the facts and in the circumstances of the case in spite of the relevant facts and evidences being on record the hon’ble tribunal erred in law in coming to a finding that the machinery was not used for the purpose of business and, therefore, the claim of depreciation under section 32 of the act for a sum of rs.32,77,267.00 could not be allowed, even though the cession of work/suspension of work in the factory premises of the petitioner was not on account of the petitioner, and during that time also the machinery was kept ready for use and that the factory having resumed operation, immediately after a certain period of time and which is still running up to the present date and the further fact is that the word user being given a wider meaning to include not only active user but passive user, the confirmation of the orders of the assessing officer as well as the commissioner of income tax (appeals) by the tribunal being the last fact finding authority by ignoring relevant facts and on the contrary taking irrelevant facts into consideration is perverse?. ii) whether on the facts and in the circumstances of the case the hon’ble tribunal erred in law in not granting the petitioner’s claim of rs.15.69 lacs incurred for filling up the pond, leveling of the low land as a revenue expenditure where no enduring benefit had accrued to the petitioner and when there was judicial view for the finding that it would be allowed as a revenue expenditure, and the mere confirmation of the order of the lower authority by the tribunal is perverse?.” on the firs.question regarding depreciation the facts are that the assessee by a notice dated 18th march, 1989 had suspended the work of the mills with effect from that day. the suspension of work continued till it was lifted in a phased manner on and from 26th december, 1994. mr.sen, learned advocate appearing on behalf of the assessee/appellant relied on two decisions of this high court in the cases of hindusthan gas & industries ltd.versus cit reported in (1995) 79 taxman -tax reports 151 and cit versus m/s.norplex oak india in ita17of 2001 disposed of by judgment dated 31st march, 2011. he submitted that in hindusthan gas & industries ltd.this court in considering the claim of an assessee for depreciation on diesel generating sets let out on lease which lease had expired but the generating sets lying in the lessee’s factory under lock-out could not be used, had held the claim was allowable. relying on m/s.norplex ork india, mr.sen submitted the word ‘used’ in section 32(1) of the act should be given a reasonable meaning. mr.sinha, learned advocate appearing on behalf of the respondent/revenue reiterated the case of the revenue made out before the authorities below. the learned tribunal found the decision of this court in the case of cit versus oriental coal co.ltd.reported in (1994) 206 itr682was squarely applicable to this case in rejecting the contention of the appellant that there was passive use of the plant and machinery of the mills for depreciation to be allowed in the lock-out period. in our view the decisions relied upon by mr.sen support his contention. in hindusthan gas & industries ltd.this court in allowing the claim of depreciation of diesel generating sets leased out for the period when the lessee’s factory premises was under lock-out had taken the following view:“the business of the assessee-company was to lease out generating sets. the lease in the instant case expired on 30-11-1974 but the assessee-company did not get back the diesel generating set because of the lock-out declared in the lessee’s factory. lock outs and strikes are the usual business hazards that a company has to face in cours.of running of the business. the fact that the lockout was not in the assessee’s own business does not make any difference to the position. the assessee had leased out a generating set in cours.of its business. it could not get back the set even after the lease period because of the lockout in the lessee’s factory. this is a happening which was incidental to the assessee’s business of leasing out generating sets. the assessee itself was not actually running the generating sets. the assessee’s business was leasing out the generators.the generating set was being used by the assessee and is still being used by the assessee in its business of leasing out generating sets. therefore, the claim of the assessee has to be allowed. accordingly, question no.4 is to be answered in the negative and in favour of the assessee.” in m/s.norplex oak india the claim for depreciation of plant and machinery arose because work was suspended due to serious deterioration of the law and order situation in the kashmir valley, this court had said:“in the case before us, the assessee was ready for doing his business. but for the advers.law and order situation, he could not actually run the factory although all the machineries were ready for use and the valuation of such machinery also depreciated notwithstanding its non-user. notwithstanding such advers.law and order situation, the assessee did not abandon its business but suffered loss for such a state of affairs prevailing in that state over which he had no control with an expectation of resuming the business. this is not a case where the assessee himself is embroiled in a dispute with his labourers and in the process, has decided to declare a lockout expressing its intention not to run the business. thus, taking into consideration the circumstances of the present case, we are of the view that the tribunal below rightly granted depreciation in favour of the assessee.” our attention was not drawn to any finding to indicate that the suspension of work was actuated by any malice. the plant was lying ready for use. applying the aforesaid decisions to the facts in this case the firs.question has to be and is answered in the affirmative and against the revenue. the second question is with regard to disallowance of the sum of rs.15.69 lakhs as revenue expenditure. the appellant/assessee had claimed such expenditure as of revenue nature on the ground that by filling up the pond the assessee did not acquire/create any new asset. the assessing officer rejected the claim of the assessee and treated the expenditure as capital in nature. the cit(a) found the pond and ground are shown as part of the land in the assessee’s schedule of assets and any improvement will definitely bring further enduring value as also enhance the cost of such asset and upheld the order of the assessing officer. the learned tribunal in its turn confirmed the order in appeal by holding as follows:“it was the case of the assessee that by filling up the pond, no new asset has been created by the assessee, rather it was yielding rental income for the assessee and hence the expenditure incurred on such filling up should be treated as revenue expenditure. in our considered view, the opinion expressed by the revenue does not call for any interference in the facts and circumstances of the case. after filling up the pond, it has become land and it automatically raises the value of such land. in this view of the matter, we hold that the revenue authorities were justified in treating the expenditure incurred on filling up the pond to give the same the shape of land as capital in nature.” mr.sen submitted the expenditure was incurred by the assessee wholly and exclusively for the purpose of business in as much as the result of it enabled the assessee to earn rental income. he relied upon the case sassoon j. david and co.p.ltd.versus cit reported in (1979) 118 itr261(sc) for the view taken by the supreme court with regard to the relevant provisions in the act of 1922, which is as follows:“in order to claim deduction under s. 10(2)(xv) of the act, an assessee has to show that the expenditure in question, (i) was not an allowance of the nature described in any of the cls. (i) to (xiv) of s. 10(2).(ii) was not in the nature of a capital expenditure or personal expenses of the assessee, and (iii) had been laid out or expended wholly and exclusively for the purposes of his business, profession or vacation.” the cit(a) in rejecting the assessee’s appeal on this ground had held as follows:“i have considered the submission. the pond and ground are shown as part of the land in assessee’s schedule of assets. any improvement in such land will definitely bring further enduring value as also enhance the cost of such assets. the said land has been improved by filling the pond. the idea was to enhance the value of such land and to give it more beneficial feature, thus adding to its value. such additional value added to the land will become part of the land and be capital in nature. also, such expenditure has been brought in further enduring value in the assets, namely, the land. i, therefore, hold that the said expenditure is certainly of capital in nature and requires no interference from the undersigned. this ground is, therefore, rejected.” the learned appellate tribunal in not interfering held that the revenue authorities were justified in treating the expenditure incurred on filling up the pond to give the same shape of land as capital in nature. the filling up of the pond and leveling of low land is an improvement and enhancement of value being a change of a permanent character resulting in a benefit of enduring nature to the assessee. in the case of kalyanji mavji and co.versus cit, west bengal ii. reported in (1973) 87 itr228(cal) also cited by mr.sen, this court had expressed the following view:“if the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. if on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure.” we find on the facts and circumstances in this case the expenditure was made for bringing into existence an advantage for the enduring benefit of the business of the assessee, and therefore, the same was capital in nature. in the circumstances the view taken by the learned appellate tribunal is certainly a possible view. we, therefore, answer the second question in the negative and against the assessee. the appeal is thus partly allowed. i agree. (girish chandra gupta, j.) (arindam sinha, j.)
Judgment:

FORM NO.(J2) IN THE HIGH COURT AT CALCUTTA Special Jurisdiction ( Income Tax) Original Side Present: The Hon’ble Justice Girish Chandra Gupta & The Hon’ble Justice Arindam Sinha Income Tax Appeal No.175 of 2005 M/s Budge Budge Company LTD.versus The Commissioner of Income Tax For the Appellant: Mr.Ananda Sen, Adv.For the Respondent: Mr.R.K.Sinha, Adv.Heard on : 12.03.2015 & 02.04.2015 Judgment on: 13th May, 2015 Arindam Sinha J.

: The appellant assessee has preferred this appeal against a judgment dated 31st December, 2004 pertaining to the Assessment Year 199293 by which the learned Appellate Tribunal dismissed both grounds of appeal of the assessee in upholding the order of the Assessing Officer as confirmed by the CIT(A).The appeal before us was admitted on the following questions:“i) Whether on the facts and in the circumstances of the case in spite of the relevant facts and evidences being on record the Hon’ble Tribunal erred in law in coming to a finding that the machinery was not used for the purpose of business and, therefore, the claim of depreciation under Section 32 of the Act for a sum of Rs.32,77,267.00 could not be allowed, even though the cession of work/suspension of work in the factory premises of the petitioner was not on account of the petitioner, and during that time also the machinery was kept ready for use and that the factory having resumed operation, immediately after a certain period of time and which is still running up to the present date and the further fact is that the word user being given a wider meaning to include not only active user but passive user, the confirmation of the orders of the Assessing Officer as well as the Commissioner of Income Tax (Appeals) by the Tribunal being the last fact finding authority by ignoring relevant facts and on the contrary taking irrelevant facts into consideration is perverse?.

ii) Whether on the facts and in the circumstances of the case the Hon’ble Tribunal erred in law in not granting the petitioner’s claim of Rs.15.69 lacs incurred for filling up the pond, leveling of the low land as a revenue expenditure where no enduring benefit had accrued to the petitioner and when there was judicial view for the finding that it would be allowed as a revenue expenditure, and the mere confirmation of the order of the lower authority by the Tribunal is perverse?.” On the fiRs.question regarding depreciation the facts are that the assessee by a notice dated 18th March, 1989 had suspended the work of the mills with effect from that day.

The suspension of work continued till it was lifted in a phased manner on and from 26th December, 1994.

Mr.Sen, learned Advocate appearing on behalf of the assessee/appellant relied on two decisions of this High Court in the cases of Hindusthan Gas & Industries LTD.versus CIT reported in (1995) 79 Taxman -Tax Reports 151 and CIT versus M/S.Norplex Oak India in ITA17of 2001 disposed of by judgment dated 31st March, 2011.

He submitted that in Hindusthan Gas & Industries LTD.this court in considering the claim of an assessee for depreciation on diesel generating sets let out on lease which lease had expired but the generating sets lying in the lessee’s factory under lock-out could not be used, had held the claim was allowable.

Relying on M/S.Norplex Ork India, Mr.Sen submitted the word ‘used’ in section 32(1) of the Act should be given a reasonable meaning.

Mr.Sinha, learned Advocate appearing on behalf of the respondent/Revenue reiterated the case of the Revenue made out before the authorities below.

The learned Tribunal found the decision of this court in the case of CIT versus Oriental Coal Co.LTD.reported in (1994) 206 ITR682was squarely applicable to this case in rejecting the contention of the appellant that there was passive use of the plant and machinery of the mills for depreciation to be allowed in the lock-out period.

In our view the decisions relied upon by Mr.Sen support his contention.

In Hindusthan Gas & Industries LTD.this court in allowing the claim of depreciation of diesel generating sets leased out for the period when the lessee’s factory premises was under lock-out had taken the following view:“The business of the assessee-company was to lease out generating sets.

The lease in the instant case expired on 30-11-1974 but the assessee-company did not get back the diesel generating set because of the lock-out declared in the lessee’s factory.

Lock outs and strikes are the usual business hazards that a company has to face in couRs.of running of the business.

The fact that the lockout was not in the assessee’s own business does not make any difference to the position.

The assessee had leased out a generating set in couRs.of its business.

It could not get back the set even after the lease period because of the lockout in the lessee’s factory.

This is a happening which was incidental to the assessee’s business of leasing out generating sets.

The assessee itself was not actually running the generating sets.

The assessee’s business was leasing out the generatORS.The generating set was being used by the assessee and is still being used by the assessee in its business of leasing out generating sets.

Therefore, the claim of the assessee has to be allowed.

Accordingly, question no.4 is to be answered in the negative and in favour of the assessee.” In M/S.Norplex Oak India the claim for depreciation of plant and machinery arose because work was suspended due to serious deterioration of the law and order situation in the Kashmir Valley, this court had said:“In the case before us, the assessee was ready for doing his business.

But for the adveRs.law and order situation, he could not actually run the factory although all the machineries were ready for use and the valuation of such machinery also depreciated notwithstanding its non-user.

Notwithstanding such adveRs.law and order situation, the assessee did not abandon its business but suffered loss for such a state of affairs prevailing in that State over which he had no control with an expectation of resuming the business.

This is not a case where the assessee himself is embroiled in a dispute with his labourers and in the process, has decided to declare a lockout expressing its intention not to run the business.

Thus, taking into consideration the circumstances of the present case, we are of the view that the Tribunal below rightly granted depreciation in favour of the assessee.” Our attention was not drawn to any finding to indicate that the suspension of work was actuated by any malice.

The plant was lying ready for use.

Applying the aforesaid decisions to the facts in this case the fiRs.question has to be and is answered in the affirmative and against the revenue.

The second question is with regard to disallowance of the sum of Rs.15.69 lakhs as revenue expenditure.

The appellant/assessee had claimed such expenditure as of revenue nature on the ground that by filling up the pond the assessee did not acquire/create any new asset.

The Assessing Officer rejected the claim of the assessee and treated the expenditure as capital in nature.

The CIT(A) found the pond and ground are shown as part of the land in the assessee’s schedule of assets and any improvement will definitely bring further enduring value as also enhance the cost of such asset and upheld the order of the Assessing Officer.

The learned Tribunal in its turn confirmed the order in appeal by holding as follows:“It was the case of the assessee that by filling up the pond, no new asset has been created by the assessee, rather it was yielding rental income for the assessee and hence the expenditure incurred on such filling up should be treated as revenue expenditure.

In our considered view, the opinion expressed by the revenue does not call for any interference in the facts and circumstances of the case.

After filling up the pond, it has become land and it automatically raises the value of such land.

In this view of the matter, we hold that the revenue authorities were justified in treating the expenditure incurred on filling up the pond to give the same the shape of land as capital in nature.” Mr.Sen submitted the expenditure was incurred by the assessee wholly and exclusively for the purpose of business in as much as the result of it enabled the assessee to earn rental income.

He relied upon the case Sassoon J.

David and Co.P.LTD.versus CIT reported in (1979) 118 ITR261(SC) for the view taken by the Supreme Court with regard to the relevant provisions in the Act of 1922, which is as follows:“In order to claim deduction under s.

10(2)(xv) of the Act, an assessee has to show that the expenditure in question, (i) was not an allowance of the nature described in any of the cls.

(i) to (xiv) of s.

10(2).(ii) was not in the nature of a capital expenditure or personal expenses of the assessee, and (iii) had been laid out or expended wholly and exclusively for the purposes of his business, profession or vacation.” The CIT(A) in rejecting the assessee’s appeal on this ground had held as follows:“I have considered the submission.

The pond and ground are shown as part of the land in assessee’s schedule of assets.

Any improvement in such land will definitely bring further enduring value as also enhance the cost of such assets.

The said land has been improved by filling the pond.

The idea was to enhance the value of such land and to give it more beneficial feature, thus adding to its value.

Such additional value added to the land will become part of the land and be capital in nature.

Also, such expenditure has been brought in further enduring value in the assets, namely, the land.

I, therefore, hold that the said expenditure is certainly of capital in nature and requires no interference from the undersigned.

This ground is, therefore, rejected.” The learned Appellate Tribunal in not interfering held that the Revenue authorities were justified in treating the expenditure incurred on filling up the pond to give the same shape of land as capital in nature.

The filling up of the pond and leveling of low land is an improvement and enhancement of value being a change of a permanent character resulting in a benefit of enduring nature to the assessee.

In the case of Kalyanji Mavji and Co.versus CIT, West Bengal II.

reported in (1973) 87 ITR228(Cal) also cited by Mr.Sen, this court had expressed the following view:“If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure.

If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure.” We find on the facts and circumstances in this case the expenditure was made for bringing into existence an advantage for the enduring benefit of the business of the assessee, and therefore, the same was capital in nature.

In the circumstances the view taken by the learned Appellate Tribunal is certainly a possible view.

We, therefore, answer the second question in the negative and against the assessee.

The appeal is thus partly allowed.

I agree.

(Girish Chandra Gupta, J.) (Arindam Sinha, J.)