CIT v. Rajasthan Spg. & Wvg. Mills Ltd.

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The Tax Publishers2005 TaxPub(DT) 0105 (Raj-HC) : (2005) 003 (I) ITCL 0026 : (2005) 272 ITR 0487 : (2004) 189 CTR 0539 : (2004) 137 TAXMAN 0249 CIT v. Rajasthan Spg. & Wvg. Mills Ltd. () INCOME TAX --Capital or revenue expenditure----Expenditure incurred on cost of construction of buildingState Government provided land to set up a modern training institute in textile technology--Assessee construction building on land provided by the State Government-- Catch Note: The assessee company is engaged in the business of manufacturing of different kinds of synthetic yarn and fabrics. The assessee company was desirous of setting up an institution in textile technology and to train persons so that the mill can get skilled technical personnels. The State Government agreed to allot land for setting up the institute free of cost and the assessee company was to construct the required building thereon at its own cost for the said purpose the assessee raised construction of the building. The expenses incurred by the assessee towards construction of the building for Textile Institute, were expenses wholly and exclusively incurred for the purpose of business of the assessee and was not in the nature of capital expenditure. therefore, the same is allowable as revenue expenses under section 37(1). Ratio: The expenses incurred by the assessee towards construction of the building for Textile Institute, were expenses wholly and exclusively incurred for the purpose of business of the assessee and was not in the nature of capital expenditure. therefore, the same is allowable as revenue expenses under section 37(1). Held: Merely because the amount spent has been used for construction of a building or structure of permanent nature is not the decisive test for holding the expenses to be capital out-lay or revenue out-lay. In the present case also, by increasing expenditure for construction of building for the Institute, the profit-making apparatus of the assessee was not expanded. Its income earning machinery remained the same. Assessee has, by contributing to construction of building, only facilitated the training of his workers at hand without necessitating their training at distant place causing more expense of time and money. Therefore, it cannot be said that assessee acquired any enduring benefit in the capital field. Therefore, the test of enduring benefit also cannot help the revenue in the case at hand. As it was a benefit which was only to run business of the assessee more efficiently by getting his workmen trained. By laying out the expenditure for bringing into existence a building to be owned by the State and to be run by the State for the benefit of the industry for the purpose of training its workmen was clearly related to the running of the business of the assessee more efficiently and smoothly by securing the assessee's workmen trained, skilled and efficient. The expenses incurred by the assessee towards construction of the building forTextile Institute, were expenses wholly and exclusively incurred for the purpose of business of the assessee and was not in the nature of capital expenditure. therefore, the same is allowable as revenue expenses under section 37(1). [Para 25] Case Law Analysis: CIT v. Bombay Dyeing & Mfg. Co. Ltd (1996) 219 ITR 521 (SC), L.H. Sugar Factory & Oil Mills (P) Ltd. v. CIT (1980) 125 ITR 293 (SC), CIT v. T. V. Sundaram Iyengar & Sons (P) Ltd. (1990) 186 ITR 276 (SC), CIT v. Madras Auto Service (P) Ltd. (1998) 233 ITR 468 (SC), CIT v. T. V. Sundaram Iyengar & Sons (P) Ltd. (1974) 95 ITR 428 (Mad), Palani Andavar Mills Ltd. v. CIT (1977) 110 ITR 742 (Mad), CIT v. Rupsa Rice Mill (1976) 104 ITR 249 (Ori) and Empire Jute Co. Ltd. v. CIT (1980) 124 ITR 1 (SC) applied and explained. Application: Also to current assessment year. Decision: In favour of assessee. Date of Judgment: 17 November 2003 Assessment Year: 1990-91 Cases Referred: Sassoon J. David & Co. (P) Ltd. v. CIT (1979) 118 ITR 261 (SC), CIT v. Rajaram Bandekar (1994) 208 ITR 503 (Bom), CIT v. Royal Calcutta Turf Club (1961) 41 ITR 414 (SC), Lakshmiji Sugar Mills Co. (P) Ltd. v. CIT (I971) 82 ITR 376 (SC) and CIT v. Associated Cement Cos. Ltd. (1988) 172 ITR 257 (SC) Income Tax Act 1961 s.37(1) INCOME TAX --Capital or revenue expenditure----Expenditure incurred on cost of construction of buildingState Government provided land to set up a modern training institute in textile technology--Assessee construction building on land provided by the State Government-- Catch Note: The assessee company is engaged in the business of manufacturing of different kinds of synthetic yarn and fabrics. The assessee company was desirous of setting up an institution in textile technology and to train persons so that the mill can get skilled technical personnels. The State Government agreed to allot land for setting up the institute free of cost and the assessee company was to construct the required building thereon at its own cost for the said purpose the assessee raised construction of the building. The expenses incurred by the assessee towards construction of the building for Textile Institute, were expenses wholly and exclusively incurred for the purpose of business of the assessee and was not in the nature of capital expenditure. therefore, the same is allowable as revenue expenses under section 37(1). Ratio: The expenses incurred by the assessee towards construction of the building for Textile Institute, were expenses wholly and exclusively incurred for the purpose of business of the assessee and was not in the nature of capital expenditure. therefore, the same is allowable as revenue expenses under section 37(1). Held: Merely because the amount spent has been used for construction of a building or structure of permanent nature is not the decisive test for holding the expenses to be capital out-lay or revenue out-lay. In the present case also, by increasing expenditure for construction of building for the Institute, the profit-making apparatus of the assessee was not expanded. Its income earning machinery remained the same. Assessee has, by contributing to construction of building, only facilitated the training of his workers at hand without necessitating their training at distant place causing more expense of time and money. Therefore, it cannot be said that assessee acquired any enduring benefit in the capital field. Therefore, the test of enduring benefit also cannot help the revenue in the case at hand. As it was a benefit which was only to run business of the assessee more efficiently by getting his workmen trained. By laying out the expenditure for bringing into existence a building to be owned by the State and to be run by the State for the benefit of the industry for the purpose of training its workmen was clearly related to the running of the business of the assessee more efficiently and smoothly by securing the assessee's workmen trained, skilled and efficient. The expenses incurred by the assessee towards construction of the building forTextile Institute, were expenses wholly and exclusively incurred for the purpose of business of the assessee and was not in the nature of capital expenditure. therefore, the same is allowable as revenue expenses under section 37(1). [Para 25] Case Law Analysis: CIT v. Bombay Dyeing & Mfg. Co. Ltd (1996) 219 ITR 521 (SC), L.H. Sugar Factory & Oil Mills (P) Ltd. v. CIT (1980) 125 ITR 293 (SC), CIT v. T. V. Sundaram Iyengar & Sons (P) Ltd. (1990) 186 ITR 276 (SC), CIT v. Madras Auto Service (P) Ltd. (1998) 233 ITR 468 (SC), CIT v. T. V. Sundaram Iyengar & Sons (P) Ltd. (1974) 95 ITR 428 (Mad), Palani Andavar Mills Ltd. v. CIT (1977) 110 ITR 742 (Mad), CIT v. Rupsa Rice Mill (1976) 104 ITR 249 (Ori) and Empire Jute Co. Ltd. v. CIT (1980) 124 ITR 1 (SC) applied and explained. Application: Also to current assessment year. Decision: In favour of assessee. Date of Judgment: 17 November 2003 Assessment Year: 1990-91 Cases Referred: Sassoon J. David & Co. (P) Ltd. v. CIT (1979) 118 ITR 261 (SC), CIT v. Rajaram Bandekar (1994) 208 ITR 503 (Bom), CIT v. Royal Calcutta Turf Club (1961) 41 ITR 414 (SC), Lakshmiji Sugar Mills Co. (P) Ltd. v. CIT (I971) 82 ITR 376 (SC) and CIT v. Associated Cement Cos. Ltd. (1988) 172 ITR 257 (SC) SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2005 TaxPub(DT) 0105 (Raj-HC) : (2005) 003 (I) ITCL 0026 : (2005) 272 ITR 0487 : (2004) 189 CTR 0539 : (2004) 137 TAXMAN 0249

CIT v. Rajasthan Spg. & Wvg. Mills Ltd. ()

INCOME TAX

--Capital or revenue expenditure----Expenditure incurred on cost of construction of buildingState Government provided land to set up a modern training institute in textile technology--Assessee construction building on land provided by the State Government--

Catch Note:

The assessee company is engaged in the business of manufacturing of different kinds of synthetic yarn and fabrics. The assessee company was desirous of setting up an institution in textile technology and to train persons so that the mill can get skilled technical personnels. The State Government agreed to allot land for setting up the institute free of cost and the assessee company was to construct the required building thereon at its own cost for the said purpose the assessee raised construction of the building. The expenses incurred by the assessee towards construction of the building for Textile Institute, were expenses wholly and exclusively incurred for the purpose of business of the assessee and was not in the nature of capital expenditure. therefore, the same is allowable as revenue expenses under section 37(1).

Ratio:

The expenses incurred by the assessee towards construction of the building for Textile Institute, were expenses wholly and exclusively incurred for the purpose of business of the assessee and was not in the nature of capital expenditure. therefore, the same is allowable as revenue expenses under section 37(1).

Held:

Merely because the amount spent has been used for construction of a building or structure of permanent nature is not the decisive test for holding the expenses to be capital out-lay or revenue out-lay. In the present case also, by increasing expenditure for construction of building for the Institute, the profit-making apparatus of the assessee was not expanded. Its income earning machinery remained the same. Assessee has, by contributing to construction of building, only facilitated the training of his workers at hand without necessitating their training at distant place causing more expense of time and money. Therefore, it cannot be said that assessee acquired any enduring benefit in the capital field. Therefore, the test of enduring benefit also cannot help the revenue in the case at hand. As it was a benefit which was only to run business of the assessee more efficiently by getting his workmen trained. By laying out the expenditure for bringing into existence a building to be owned by the State and to be run by the State for the benefit of the industry for the purpose of training its workmen was clearly related to the running of the business of the assessee more efficiently and smoothly by securing the assessee's workmen trained, skilled and efficient. The expenses incurred by the assessee towards construction of the building forTextile Institute, were expenses wholly and exclusively incurred for the purpose of business of the assessee and was not in the nature of capital expenditure. therefore, the same is allowable as revenue expenses under section 37(1). [Para 25]

Case Law Analysis:

CIT v. Bombay Dyeing & Mfg. Co. Ltd (1996) 219 ITR 521 (SC), L.H. Sugar Factory & Oil Mills (P) Ltd. v. CIT (1980) 125 ITR 293 (SC), CIT v. T. V. Sundaram Iyengar & Sons (P) Ltd. (1990) 186 ITR 276 (SC), CIT v. Madras Auto Service (P) Ltd. (1998) 233 ITR 468 (SC), CIT v. T. V. Sundaram Iyengar & Sons (P) Ltd. (1974) 95 ITR 428 (Mad), Palani Andavar Mills Ltd. v. CIT (1977) 110 ITR 742 (Mad), CIT v. Rupsa Rice Mill (1976) 104 ITR 249 (Ori) and Empire Jute Co. Ltd. v. CIT (1980) 124 ITR 1 (SC) applied and explained.

Application:

Also to current assessment year.

Decision:

In favour of assessee.

Date of Judgment:

17 November 2003

Assessment Year:

1990-91

Cases Referred:

Sassoon J. David & Co. (P) Ltd. v. CIT (1979) 118 ITR 261 (SC), CIT v. Rajaram Bandekar (1994) 208 ITR 503 (Bom), CIT v. Royal Calcutta Turf Club (1961) 41 ITR 414 (SC), Lakshmiji Sugar Mills Co. (P) Ltd. v. CIT (I971) 82 ITR 376 (SC) and CIT v. Associated Cement Cos. Ltd. (1988) 172 ITR 257 (SC)