The Commissioner of Income Tax, Cochin v. South India Corporation Ltd.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY ,THE 25TH DAY OF JANUARY 2019 / 5TH MAGHA, 1940** ## **ITA.No. 1188 of 2009** **AGAINST THE ORDER/JUDGMENT IN ITA 1212/COCH/2004 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 16.2.2007** ## **APPELLANT/S:/RESPONDENT/ASSESSEE:** **THE COMMISSIONER OF INCOME TAX COCHIN.** **BY ADV. SRI.JOSE JOSEPH, SC FOR INCOME TAX** ## **RESPONDENT/S:/APPELLANT/ASSESSEE:** **SOUTH INDIA CORPORATION LTD. RANI MEYYAMMA BUILDING, 5 KPK MENON ROAD, KOCHI-3.** **BY ADVS. SMT.LATHA ANAND SRI.K.ANAND (SR.) S.SRIDHAR** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25.01.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ITA 1188/09 -2- ## **K.VINOD CHANDRAN & ASHOK MENON, JJ.** ------------------------------------------- ITA No.1188 of 2009 ------------------------------------------Dated this the 25[th] day of January, 2019 **==> picture [127 x 9] intentionally omitted <==** ## Vinod Chandran, J. The question of law raised in the above appeal is re-framed as follows:- “Whether in the facts and circumstances of the case, the preliminary expenditure incurred by the assessee for submitting a tender for the purpose of construction, equipping, operation and maintenance of two berths on Build, Operate and Transport (BOT) basis in the Vaizag Port, can be allowed as a revenue expenditure, as permitted by the Income Tax Appellate Tribunal, especially when the assessee was venturing into a new line of business?” 2. The facts indicate that the assessee had a Transport Division at Chennai which showed a sundry expenses of Rs.41,54,531/-. On calling for a break up, it was revealed that Rs.16,26,731/- was ITA 1188/09 -3- captioned as Vaizag Berth consultation. The explanation with respect to such expense was that Government of India had called for tenders for construction, equipping, operation and maintenance of two multi purpose berths on BOT basis for the Vaizag Port. The asssessee had obtained bid documents and engaged a consultant for preparation of the tender and finalisation of the technical and price bids. The Company also submitted the tender incurring an expenditure of Rs.16,26,731/-. However, Ministry of Surface Transport, Government of India, abandoned the project for reason of modifications made to the project itself. The tender was cancelled and hence, the assessee claimed the aforesaid amounts as business expenditure. 3. The Assessing Officer was of the opinion, after perusal of the various activities ITA 1188/09 -4- undertaken by the assessee, that this was a new line of business, which the assessee had entered into. The mere fact that a consultant was engaged for submission of tender, was also found to be a pointer to the fact of the assessee venturing into a new line of business. Finding that the tender submission for the BOT project was not, in any manner, connected with the other existing businesses of the assessee, the Assessing Officer found that the expenditure can only be capital. 4. The learned Standing Counsel, Government of India (Revenue) would point out that the Tribunal erred insofar as setting aside the order of the Assessing Officer as confirmed by the first appellate authority. It is pointed out that all expenditure on the capital side need not create an asset and hence, non-creation of an asset would not be a consideration while considering the claim ITA 1188/09 -5- of business expenditure. The assessee had many lines of businesses and this was a new business into which the assessee ventured. The expenditure, if any, caused in such business cannot be set off against the profits of other businesses, is the contention. 5. The learned counsel appearing for the respondent places reliance on the judgment of the Honourable Supreme Court reported in _**(1989) 177 ITR**_ _**377 (SC) [Alembic Chemical Works Co. Ltd. v. - Commissioner of Income Tax]**_ to support the contention that the assessee was engaged in related activities and had merely attempted an expansion of its activities, which resulted in the expenditure. The venture though not new, did not take off since the Government of India abandoned the project. It is also specifically argued that no question of law arises, since the issue of a related business has ITA 1188/09 -6- been dealt with by the Tribunal and held on facts in favour of the assessee. 6. We see from the order of the Tribunal that it had found that the assessee had been engaged in the activity of construction of building, berths etc. for Chennai Container Private Limited in the Madras Port Trust. The assessee was carrying on the business of clearing and forwarding, handling port services, cargo handling, steamer agents etc. and had also made constructions as herein above stated in the Madras Port Trust. The Tribunal found that the assessee had already entered the line of business of constructions in the Ports and hence, submission of a tender for the Vaizag Port was not in the nature of venturing into a new line of business. 7. In _**Alembic Chemical Works Co. Ltd.**_ (supra) a pharmaceutical Company had obtained ITA 1188/09 -7- technical know-how from abroad for increasing yield of penicillin in its existing plant, the know-how being utilised for expansion of the existing business. The Supreme Court found that there cannot be a single criterion determinative as to whether a particular outlay is capital or revenue. It was held; the expenditure being 'once for all' is inconclusive to find it as spend for capital and the test of 'enduring benefit' may break down in many instances. _**“ What is relevant is the purpose of the outlay and its intended object and effect, considered in a common-sense way having regard to the business realities”(sic-para14).**_ The Honourable Supreme Court held expense incurred for acquisition of technical know-how for achieving higher production of penicillin was a business expenditure and not in the nature of a capital expenditure especially when the assessee was ITA 1188/09 -8- engaged in the business of manufacture and sale of drugs. We reiterate the finding of the Tribunal, which noted that the assessee was engaged in Port related activities and had also carried out constructions in Ports and the submission of tender for a BOT project for the Vaizag Port was a related activity. The project did not take off and as held by the Supreme Court on the facts in this case there was no enduring benefit obtained by the assessee. It broke down when the Government of India cancelled the tender. We do not find any question of law arising, since the facts have been gone into by the Tribunal and held in favour of the assessee. We, hence, find that the Revenue is liable to fail in the appeal and we reject the appeal refusing to answer the question of law ITA 1188/09 -9- upholding the order of the Tribunal on facts. No order as to costs. **Sd/-** **K.VINOD CHANDRAN** **JUDGE** **Sd/ASHOK MENON JUDGE** ITA 1188/09 -10- ## **APPENDIX** ## **APPELLANT'S EXHIBITS** **ANNEXURE-A** ## **ANNEXURE-B** ## **ANNEXURE-C** **COPY OF ORDER UNDER SECTION 143(3) DATED 18.2.2003 FOR THE ASST. YEAR 2000-01.** **COPY OF ORDER DATED 11.5.2006 OF THE COMMISSIONER OF INCOME TAX (APPEALS).** **COPY OF ORDER DATED 16.2.2007 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN ITA NO.1212/COCH/2004.** **[True Copy]** jg