| SooperKanoon Citation | sooperkanoon.com/74464 |
| Court | Income Tax Appellate Tribunal ITAT Ahmedabad |
| Decided On | Nov-11-2005 |
| Judge | R Tolani, S Arora |
| Reported in | (2007)104ITD171(Ahd.) |
| Appellant | The Joint Commissioner of |
| Respondent | Deversons Industries Ltd. |
2. The Revenue has raised as many as six grounds of appeal numbered as 1(i) to (vi), as under; each one is taken at seriatim: (i) in directing to exclude the Central Excise duty and Sales-tax collected from turnover for claim of deduction Under Section 80HHC. (ii) in deleting the disallowance of excess processing charge Under Section 40A(2)(b) of Rs. 75,000/-.
(iii) in deleting the disallowance of Rs. 15,68,777/- being expenses for payment made to Ministry of Forest and Environment, Govt. of Gujarat.
(iv) in deleting the disallowance of Rs. 4,20,000/- being effluent treatment expenses.
(v) in directing to allocate admn. exp. Selling and distribution expenses as per specific figures given by the assessee with evidence while computing deduction Under Section 80IA though he himself has upheld A.O.'s action of invoking provision of Section 80IA(10) and accordingly allocation was on the basis of turnover of each unit.
3. The first ground of appeal relates to the direction by the learned CIT(A), vide para 8 of his order, relying on the decisions of the ITAT Chandigarh and Mumbai Benches reported at 53 ITD 180 and 59 TTJ 95, respectively, to exclude the amount of sales tax from the amount of total turnover for the purpose of computing the deduction exigible Under Section 80HHC of the Income-tax Act, 1961 ("Act" hereinafter).
Before us, it was conceded by the learned D.R. that this matter stands covered and since settled by the decision of the Special Bench of the Tribunal in IFD Agro Industries v. DCITreported at 83 ITD 96 (Cal).
Further, this matter has also travelled to various High Courts, and in all cases decided by them in the assessee's favour, as for example in the case of CIT v. Sudarshan Chemical Industries Ltd. 245 ITR 769(Bom) and Chloride India Ltd. v.256 ITR 625 (Cal.) In view of the foregoing, we find no merits in the claims of the Revenue, and the order of the learned CIT(A) is upheld.4. In respect of the second ground, it was contended at the outset by the learned D.R. that this issue, was also subject matter of appeal by the Revenue in assessee's case for A.Y. 1995-96 before the ITAT and stands heard by it in July, 2005. As such, the facts being identical, the ratio of the said decision be applied in deciding the issue in the present appeal as well. The learned A.R. concedes.
5. From records it has been found that the Revenue's appeal in the assessee's case for A.Y. 1995-96 (ITA No. 1414/Ahd/1999) stands since decided by the ITAT, 'B' Bench, Ahmedabad, vide its order dated 20-7-2005, wherein it has disposed off this matter by remitting it back to the file of A.O. to decide the same in accordance with the final outcome on the issue for A.Y. 1994-95, in the following words (para 5): 5. The common contention of the ld. representative of the parties that the above issues have been decided by the CIT(A) following his predecessor's order for A.Y. 1994-95. Both the parties has failed to point out the final outcome of A.Y. 1994-95. Under the circumstances, we find appropriate to send back this matter to the file of A.O. with a direction to decide all the three issues on the basis of final outcome of A.Y. 1994-95 after providing reasonable opportunity of hearing to the assessee.
In view of the foregoing, we deem it fit and in the interest of justice and fairness of procedure, to remit this matter back to the file of A.O. for following the decision of the ITAT in the assessee's case in this matter in accordance with the decision for A.Y. 1994-95. We order accordingly.
6. The next and third ground of appeal relates to the disallowance of Rs. 15,68,777 being payment made to the Ministry of Forest and Environment, Government of Gujarat, by the assessee, among others, on the directions of Hon'ble High Court of Gujarat for the socio-economic upliftment of the population of the affected villages, because of discharge of effluent by the industries of the area, of which the assessee's is one, calculating the same at the rate of one per cent of the gross turnover for the financial year 1993-94 or 1994-95, whichever is more.
7. At the outset, it was pointed out by the learned A.R. that this matter stands since decided in favour of the assessee by the ITAT (Ahmedabad Bench 'A') in the case of Mahalaxmi Fabric Mills Ltd., Ahmedabad dated 27-4-2005, which stands placed on record, through its gist reported in Ahmedabad Chartered Accountants Journal issue of May 2005. He, thus, pleaded the issue as fully covered by the said decision. The learned D.R., very fairly, concedes; the payment in the cited case being also in pursuance to the same order of the Hon'ble Gujarat High Court as in the present case.
8. We have heard the rival submissions and perused the material on record. In the cited case the ITAT was seized of the same issue, i.e., of the deductibility of the amount directed to be paid in lump sum by 756 industrial units to the Ministry of Environment, Government of Gujarat, for the socio-economic upliftment of the population of the affected villages (named therein) by the pollutants discharged by the said units. And it, relying on the decision of the Hon'ble Supreme Court in the case of Mahalaxmi Sugar Mills v. CIT123 ITR 429, held the same as compensatory in character, and thus, allowable as a business expenditure Under Section 37 of the Income-tax Act, 1961 ("Act' hereinafter). The assessee happens to be one such unit. In view of the facts, respectfully following the said decision, we hold the impugned payment of Rs. 15,68,777 by assessee to the Government of Gujarat as compensatory in nature, and thus allowable in full. The order of the learned CIT(A) is thus upheld.9. The fourth ground of appeal relates to the disallowance of Rs. 4,20,000 being the payment(s) made to Ahmedabad Municipal Corporation ("AMC" for short)/Gujarat Industrial Development Corporation ("GIDC" for short) at Rs. 3,70,000, and further amount of Rs. 50,000 to M/s.
Odhav Enviro Projects Limited (OEPL), towards setting-up of a common Effluent Treatment Plant (ETP), as also the conveyance of the said effluent from their point of discharge (by the polluting units of which the assessee is one) to its ultimate point of disposal, on the direction of the Hon'ble Gujarat High Court in Civil Petition No.770/95. The same was held to be as a capital expenditure by the learned A.O., who disallowed the same, placing reliance on the decision of the Hon'ble Rajasthan High Court in case of Jaswant Trading Co. v.CIT(1995) 212 ITR 293, wherein, a similar issue was decided by it, holding the payment made by the assessee unit to RIICO, for the setting-up of the water treatment plant, as capital in nature. In appeal, the learned CIT(A) allowed the assessee's claim, holding that the said expenditure, though resulting in an enduring benefit to the assessee, is not an advantage that could be said to be in the capital field, even as held by the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd.124 ITR 1,and thus, is allowable as a revenue expenditure, being solely for the assessee's business purposes. Aggrieved, the Revenue is in appeal before us.
10. Before us, while the learned D.R. placed strong reliance on the judgment of the Hon'ble Rajasthan High Court in the case of Jaswant Trading Co.(supra), arguing that the said expenditure being only to set-up a common treatment facility, which the assessee is even otherwise obliged to set-up (under the Pollution Control Law), the same could not be considered as revenue in nature by any score. He also urged the alternate ground taken by the A.O., i.e., of the said expenditure, even if held to be as of revenue nature, would not merit allowance, in view of the fact that the said facility, to be set-up under the auspices of GIDC, in Odhav industrial area, was not actually set up or put to use either during the year under consideration, or even for the subsequent two years, so that on account of principle of accrual of expenditure, the same cannot be considered to be relatable to the current year.
11. The learned A.R., on the other hand, was equally vehement in support of the assessee's claims. The total expenditure of Rs. 4,20,000, it was explained, comprises of a sum of Rs. 3,70,000 to be paid to AMC for setting-up of the conveyance facility, by installing a net-work by pipelines, of the effluent discharged by the polluting industrial units, and Rs. 50,000 paid to OEPL for setting-up of the common ETP. Both the payments stood discharged during the relevant year, in compliance with the directions of the Hon'ble Gujarat High Court, and being only an expenditure incurred by the assessee as a responsible corporate citizen in compliance with the direction of the court of law, and which otherwise could lead to severe adverse consequences including the defending suits for compensation, or otherwise closure of its operations, etc., the same acquires the nature of a revenue expenditure; the assessee having no right or title in the facilities to be set-up from the amounts contributed by the contributing units. He, in support of his claims, placed reliance on the decision of the Hon'ble Supreme Court in the case of Alembic Glass Industries Ltd. 177 ITR 1 and that of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat Mineral Development Corporation(1981) 132 ITR 377.
12. We have heard the rival submissions and perused the material on record, as also the case law cited. We find that though the payment of Rs. 3,70,000 and Rs. 50,000 to AMC and OEPL during the relevant year is confirmed on the basis of the orders of the authorities below, there is no finding by any of them as to the exact purpose for which the respective amounts stand paid, even as the same are, undoubtedly, for the purpose of the setting up of a common ETP (for and on behalf of the polluting units of the area) and the conveyance of the effluent so discharged. As such, we, for the time being, proceed with the matter accepting the contention of the assessee, as also made before the lower authorities, i.e., of Rs. 50,000 as representing the contribution towards the setting-up of the ETP by OEPL, and Rs. 3,70,000 as contribution towards the capital cost of setting-up of pipelines for the conveyance of the effluent discharged.
13. Before we proceed in this matter, it would be profitable to understand the exact nature and scope of the obligations cast by the Pollution and Environment Control Laws/Enactments on the relevant subject(s). It is the duty of each industrial unit to discharge the effluent emanating from its works into the public drainage/sewerage system, duly treated, i.e., rendered from (to the extent defined under the relevant laws) of the various toxic and other contaminant material therein. It was, thus, on the failure on the part of the industrial units, of which the assessee's unit is admittedly one, to do so, that, on a petition being filed before the Hon'ble jurisdictional High Court, it directed the said industries to contribute towards the setting up of a common ETP, as also towards the cost of the facilities required for its conveyance, as, without the same being in place, no effective remedy of the malady would come into effect. It was in this background that the assessee, among others, contributed the impugned amount of Rs. 4,20,000 aforesaid to AMC and OEPL, the nature of which is presently in dispute.
14. We take up the matter of examination of Rs. 3,70,000 first. The obligation of the assessee, as an industrial unit, under the law, being only to treat the effluent to the required degree prior to its discharge in the public drainage, the contribution made by it, on the direction of the Hon'ble Gujarat High Court, to contribute towards the laying of the net-work of pipelines required for the conveyance of the discharge, in view of the high cost the project entails, being outside the financial capacity of the relevant authority, being AMC, Ahmedabad, is only an obligation that it assumes as a responsible citizen, as in its absence, the entire scheme, as sought to be put in place by the said court, to alleviate a continuing hardship/problem, would become unworkable/unfeasible. That, it may have also been motivated, as a part of the group of participating industrial units of the area, to buy peace with the State Industries, or the Pollution Control, Department, or to safeguard themselves from the penal consequences that may visit on account of their violation of the law in the past, though relevant from business stand-point, are irrelevant to the purpose of the nature and scope of the obligation under the law. Rather, if at all, these consideration(s) only go to support its (assessee's) argument of the said contribution being made only to protect its business as a on-going entity, and thus, its business interests/profitability, with no concomitant financial benefit/interest, so that the expenditure is only a revenue expenditure incurred wholly and exclusively for its business.
As such, we are inclined to agree with the arguments of the learned A.R. that the said expenditure is revenue in nature, the only advantage the assessee deriving from the said expenditure being avoidance of protracted litigation and enabling its smooth conduct, and thus, protecting its business profits and assets; it being not charged under law to do so, and thus, is a revenue expenditure allowable in full. In doing so, we are aware that the cost of the pipeline would also include that from the respective polluting unit to the common ETP, which, strictly speaking, lies in the area of responsibility of the discharging unit. However, considering the totality of the facts, where the cost arises only on account of the assessee agreeing, for various business reasons, to participate in a scheme framed by the Hon'ble High Court, as a remedy to a perpetual public hazard, i.e., a social cause, the same would form a part and parcel of the envisaged project, and thus, the entire expenditure incurred for the purpose of the conveyance of its discharge would be deductible.
15.1 Now we take up the second aspect of the matter, i.e., the contribution of Rs. 50,000 for the setting-up of the common ETP facility to effect the treatment of the effluent being discharged by the respective units. As it appears, the Hon'ble High Court, on being seized of the matter, addressed itself to the root of the continuing problem, and finding the same to be a social problem, with economic dimensions, being cost-prohibitive, required all the effected units to come together to set up a common facility for the purpose, charging the Gujarat Industrial Development Corporation (GIDC) as a Government agency to monitor the process, with OEPL acting as the agency for the actual execution of the work. In view of the same, we find this payment to be essentially as nothing more than the contribution by each individual member to the facility thus generated for the benefit of the smooth conduct of the business of the individual members who may otherwise, i.e., individually, not be in a position to install such a facility, or being even otherwise more economical. The consideration that the said units were statutorily obliged to do so, i.e., under law, though relevant, gets diluted in view of the order of the jurisdictional High Court, which the impugned units, of which the assessee's unit is one, can fail to comply with only at their own peril. Once the matter becomes subjudice, it is the writ of the court that shall hold the field, so that even as the assessee's primary obligation to treat its discharge may have been the factor weighing on the court's mind, the very fact that it directed the defaulting unit(s) to contribute also towards the pipeline, only goes to show that it looked at the larger picture, and did not adjudicate in the matter on the basis of that primary obligation alone. And the considerations that would have weighed on the said units, in accepting the court's directions, could only be that of business. As such, the contribution of Rs. 4,20,000, even though comprising of two separate amounts for different purposes, has to be viewed as a composite sum, serving the same end, and forming part of the same common scheme formulated by the court, so that one cannot be divorced from, or looked at independent of, the other, as, for want of either, the said scheme becomes inoperational.
15.2 Further, no rights or property in the said facility (ETP) enures to the assessee. The nature of the right that accrues, i.e., to get the discharge treated, has not been spelled out in any definite terms, so that as far as we understand, it is limited to just that, with no further rights, as say of transferability, etc., in the absence of which the benefit/advantage cannot be regarded as one lying in the capital field, even as held by the Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. v. CIT. In the facts of that case, it may be useful to recapitulate, the payment/expenditure was for acquisition of technical know-how, and considered by the Apex Court as revenue in nature, in view of the assumption of a transient character by the knowledge acquired thereby in an environment of rapid development in the scientific arena,as no definitiveness of any benefit for any extended period of time could be ascribed to the same, so that it was only a case of application of principles as enunciated inEmpire Jute Co. (supra).
16. Before us, the learned A.R./D.R. have placed reliance on some case law, and which, therefore, we are obliged to consider. The first case is that of CIT v. Navsari Cotton and Silk Mills. In that case, the assessee-company discharged effluent causing health hazard, which was protested by the citizens of the area. Apprehending a spate of suits therefrom, and in view of the Municipality being unable to remedy the situation, and prevent litigation, the assessee made a contribution to the Municipality for providing underground pipeline through the municipal land for the disposal of effluents, as otherwise it ran the risk of loosing market, customers and goodwill, even if injuncted from operating its mills for a short duration. The same was, under these circumstances, held to be an allowable business expenditure Under Section 37 of the Act. The facts as emanating in the said decision, cover the case of the assessee, in-so-far as the contribution to the pipeline net-work to be laid by the AMC is concerned, and which we have already, for the reasons afore-cited, held to be an allowable business expenditure, and which decision the said judgment only validates.CIT v. Gujarat Mineral Development Corporation (1981) 132 ITR 377 (Guj.). In that case the assessee incurred an expenditure of Rs. 204.46 lakh, representing its 50 per cent share of the total amount spent by Gujarat Electricity Board for laying electric cables and electric supply transmission lines, etc. for a Beneficiation Plant, to enable the assessee to separate waste material from the useful material, as a part of its operations. The same was held to be revenue expenditure, as by its incurrence, the assessee only enabled itself to carry on its business more efficiently and profitably. We find that the facts of this case are akin to that of the assessee in respect of contribution to AMC for laying down of the net-work of pipelines; the ratio of the decision being that the advantage enuring to the assessee being not one in the capital field, with no addition to its profit-making apparatus, but only to operate the existing one efficiently.
18. The Revenue has relied upon the decision of the Hon'ble Rajasthan High Court in a similar matter in the case ofJaswant Trading Co. v. CIT (1995) 212 ITR 293, and wherein the said court held the same to be capital expenditure, in the following words (page 297): In the present case, it is not in dispute that if the water-treatment plant was installed by the assessee himself, he would not have been entitled to claim it as revenue expenditure. If RIICO as a catalyst agent acted on behalf of a number of entrepreneurs in installing the plant which has given an enduring benefit to all the units, it cannot be considered to be revenue expenditure. We are, therefore, of the opinion that the payment made to RIICO for the water-treatment plant is capital expenditure.
The said decision, however, is distinguishable, as in the instant case, the assessee, in paying the contribution, is only defending its title to its business, and also facilitating its conduct, as the same would not be possible without the impugned contribution. In the cited ease, RIICO acts as an agent for the contributing units in setting-up the common ETP facility. Clearly, the proprietory rights, directly or indirectly, in such a case would vest with the contributing units, yielding a capital asset, while, as discussed earlier, no such rights accrue in the facts of the present case.
19. As regards the Revenue's alternate ground, i.e., of the said expenditure, even if held as revenue in nature, as being not allowable, as the facility had neither been set-up nor put to use in the current year, we consider the same to be misconceived. The contribution being made in pursuance to the court's directions, with a dominant purpose to prevent disruption/dislocation of business and/or adverse claims on it, the time of the actual setting-up, or the operation, of the facility (and which would only be subsequent to the time of the contribution, being its off-spring), to which end the contributed amounts were to be utilized (by a separate Body), is not relevant for the purpose; the contribution having served the (business) purpose insofar as the assessee is concerned.
20. In view of the foregoing, we hold the entire contribution of Rs. 4,20,000 by the assessee for the setting up of the common ETP facility and for the laying of the pipeline network for conveyance of the discharge, in the facts and circumstances of the case, as a revenue expenditure. We order accordingly, upholding the order of the learned CIT(A).
21. Grounds of appeal # 5 being not pressed, is therefore, dismissed as such.
22. Ground # 6 does not arise out of the order of the learned CIT(A) and, as such, is dismissed in limine, as incompetent.
23. Grounds of appeal # 7 and 8 (numbered as 2 and 3) being general in nature do not warrant any specific adjudication.