Dhara Vegetable Oil & Food Co.Ltd., Ahmedabad V. The ACIT., Circle1-1(1), Baroda

ITA 2942/AHD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1956 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 10-12-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 28-12-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Capital asset; Depreciation; Charitable institution; Wholly owned subsidiary; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 143(3); 234B; 143(1); 32

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI T.K.SHARMA, JM AND D.C.AGRAWAL, AM DHARA VEGETABLE OIL & FOOD CO. LTD., NDDB CAMPUS, ANAND-388 001. V/S . ASSTT.COMMISSIONER OF INCOME-TAX, CIR.1(1), BARODA. PAN NO.AABCD 3060 H (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI S. N. SOPARKAR, SR.ADVOCATE RESPONDENT BY:- SHRI ANIL KUMAR, CIT, SR.DR O R D E R PER D.C.AGRAWAL, ACCOUNTANT MEMBER . THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 14.11.2006 RAISING FOLLOWING GROUNDS : - 1. THE ORDER PASSED BY THE LD. CIT(A) IS BAD IN LAW. I T REQUIRES TO BE MODIFIED. IT IS SUBMITTED THAT IT BE SO HELD NOW . 2. THE LD. CIT(A) HAS CONFIRMED ADDITION MADE CONSIDER ING GRANT RECEIVED OF RS.24,44,38,406/- AS REVENUE RECEIPT AN D MAKING ADDITION TO TOTAL INCOME. IT IS SUBMITTED THAT IN T HE FACTS AND CIRCUMSTANCES OF THE CASE, THE GRANT OF RS.24,44,38 ,406/- RECEIVED BY THE APPELLANT COMPANY FROM NDDB CONSTIT UTES CAPITAL RECEIPT. IT BE SO HELD NOW. ITA NO.2942/AHD/2006 ASST. YEAR:2002-03 2 2.1 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT AS PER THE AGREEMENT, THERE WAS A SPECIFIC CONDITION TO UTILIZ E INTEREST INCOME AND ON THAT CONSIDERATION ALSO THE GRANT OF RS.24,44,38,406/- WAS NOT IN THE NATURE OF REVENUE INCOME. IT BE SO HELD NOW. 2.2 THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE CO NTENTION THAT NATURE OF GRANT WOULD NOT DEFER EITHER RECEIVE D IN FORM OF CASH OR IN KIND. IT IS SUBMITTED THAT GRANT HAS BEE N ACCEPTED AS A CAPITAL RECEIPT AND ON THAT PREMISES GRANT RECEIV ED IN CASH FORM SHOULD ALSO BE HELD TO BE CAPITAL IN NATURE. I T BE SO HELD NOW. 3. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE LEASE RE NT EXPENSES OF RS.7,84,704/- PAID FOR LEASEHOLD LAND SITUATED A T NARELA CONSIDERING SAME AS CAPITAL EXPENDITURE. IT IS SUBM ITTED THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LEASE RENT PAID OF RS.7,84,704/- OUGHT TO HAVE BEEN HELD TO BE REVENUE EXPENDITURE. IT IS SUBMITTED THAT IT BE SO HELD NOW . 4. THE LD. CIT(A) HAS ERRED IN NOT DIRECTING THE LD. A O TO ALLOW DEPRECIATION ON ACTUAL COST OF THE ASSETS TRANSFERR ED FROM NATIONAL DAIRY DEVELOPMENT BOARD WORTH RS.5,55,61,5 94/- AS GRANT. IT IS SUBMITTED THAT IN THE FACTS AND CIRCUM STANCES OF THE CASE, PURSUANT TO EXPLANATION 2 TO SECTION 43(1) OF THE IT ACT, DEPRECIATION OUGHT TO HAVE BEEN GRANTED. IT IS SUBM ITTED THAT DIRECTION BE GIVEN TO THE LD. AO TO ALLOW THE DEPRE CIATION ACCORDINGLY. IT IS SUBMITTED THAT THE LD. AO MAY BE DIRECTED TO ALLOW THE SAME. 5. THE LD. CIT(A) HAS ERRED IN NOT DELETING THE INTERE ST CHARGED U/S 234B OF THE ACT FOR RS.3,88,48,074/-. IT IS SUBMITT ED THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE NO INTEREST U/S 234B IS LEVIABLE. IT IS SUBMITTED THAT IT BE SO HELD NOW. 6. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE INTEREST CHARGED U/S 234D OF THE ACT FOR RS.2,74,440/-. IT IS SUBMITTED THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE NO INTEREST U/S 234D IS LEVIABLE. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2. FIRST OF ALL WE TAKE UP GROUND NO.4 WHICH RELATE S TO GRANT OF DEPRECIATION ON SUM OF RS.5.55 CRORES WHICH WAS GIV EN BY NATIONAL DAIRY 3 DEVELOPMENT BOARD (HEREINAFTER REFERRED TO AS NDDB) AS PART OF GRANT OF RS.30 CRORES FOR RESEARCH AND DEVELOPMENT. 3. WE FIRST TAKE THE ISSUE COVERED IN GROUND NO.4. THE ASSESSING OFFICER & THE CIT(A) DID NOT ALLOW THE DEPRECIATION ON THE SUM OF RS.30 CRORES REDUCED FROM THE COST OF PLANT AND MACHINERY AND OTHER DEPRECIABLE ASSET ON THE GROUND THAT COST WAS ENTIR ELY MADE BY NDDB AND, THEREFORE, ACTUAL COST IS NIL. THE LD. AUTHORI SED REPRESENTATIVE ALSO SUBMITTED THAT ISSUE IS ALSO COVERED IN ASSESSEES FAVOUR BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS . KAIRA DISTRICT CO- OP. MILK PRODUCERS UNION LTD. (2001) 247 ITR 314 ( GUJ). 4. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND RELIED ON THE ORDER OF CIT(A). HE SUBMITTED THAT THIS ISSUE C ANNOT BE ADJUDICATED BY THE TRIBUNAL BECAUSE IT IS NOT APPROVED BY THE C OD. HE REFERRED TO THE LETTER NO.COD/41/2008 DATED 4 TH AUGUST, 2008 FROM THE DEPUTY SECRETARY, CABINET SECRETARIAT (MANTRIMANDAL, SACHI VALAYA) RASHTRAPATI BHAWAN, NEW DELHI, PLACED ON RECORD. 5. WE HAVE BEARD THE RIVAL SUBMISSIONS AND GONE THR OUGH THE MATERIAL ON RECORD. WE FIND THAT APPROVAL GIVEN BY THE COD I S IN RESPECT OF CAPITAL GRANT AND LEASE RENT AND THE ISSUES RAISED IN GROUN D NO.4 AND OTHER GROUNDS ARE NOT APPROVED BY THE COD. ACCORDINGLY WE ADJUDICATE ONLY GROUND NO.2 AND 3 AND REJECT OTHER GROUNDS AS NOT A PPROVED. WE DECLINE TO ADJUDICATE ISSUE IN THE ABSENCE OF COD APPROVAL. 6. SO FAR AS GROUND NO.2 IS CONCERNED, THIS RELATES TO CONFIRMATION OF ADDITION CONSIDERING GRANT OF RS.24,44,38,406/- REC EIVED AS REVENUE RECEIPT. 4 7. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY IS ENGAGED IN MANUFACTURING AND TRADING IN VARIOUS EDIBLE OILS AN D FOOD PRODUCTS UNDER THE BRAND NAME DHARA. ONE OF THE OBJECTS INCIDENT AL OR ANCILLARY TO THE MAIN OBJECTS OF THE ASSESSEE COMPANY WAS TO ACQUIRE , TAKE-OVER AND MANAGE THE ON-GOING AND OTHER AGRICULTURAL PRODUCTS IN OPERATION IN NDDB WITH ALL ASSETS OR LIABILITIES HELD IN CONNECT ION WITH THE PRODUCTION OF VEGETABLE OIL BY NDDB. THE NDDB IS A BODY CORPOR ATE ESTABLISHED UNDER AN ACT OF PARLIAMENT I.E. NATIONAL DAIRY DEVE LOPMENT BOARD ACT, 1987. NDDB HAS BEEN AUTHORISED TO FORM ONE OR MORE SUBSIDIARY COMPANIES FOR IMPLEMENTATION OF ITS OBJECTS AFTER O BTAINING NECESSARY APPROVAL OF THE CENTRAL GOVERNMENT UNDER SECTION 43 (1) OF THE NDDB ACT. ACCORDINGLY NDDB OBTAINED PRIOR APPROVAL OF TH E CENTRAL GOVT. UNDER SECTION 43(1) OF ITS ACT AND TRANSFERRED ALL ITS OIL RELATED ACTIVITIES CARRIED OUT BY A SEPARATE DIVISION OF NDDB TO ASSES SEE COMPANY UNDER SECTION 43(2) OF THE NDDB ACT. ACCORDINGLY VIDE AGR EEMENT DATED 23 RD MARCH, 2001 NDDB TRANSFERRED ITS SEPARATE DIVISION CARRYING OUT ITS OIL RELATED ACTIVITIES TO THE ASSESSEE COMPANY. IT IS U NDISPUTED FACT THAT ASSESSEE IS WHOLLY OWNED SUBSIDIARY OF NDDB. DURING THE YEAR UNDER CONSIDERATION ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 30.10.2002 DECLARING TOTAL INCOME OF RS.7,87,09,889/-. THE RET URN WAS ACCEPTED ORIGINALLY UNDER SECTION 143(1) BUT SUBSEQUENTLY SC RUTINY ASSESSMENT ORDER UNDER SECTION 143(3) WAS PASSED ON 17.3.2005. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSE SSING OFFICER FOUND THAT NDDB HAS GIVEN A GRANT OF RS.30 CRORES F OR RESEARCH & DEVELOPMENT TO THE ASSESSEE COMPANY. OUT OF ABOVE S UM RS. 5,55,61,594/- WAS GIVEN IN THE FORM OF FIXED ASSETS . ACCORDINGLY COST OF THESE FIXED ASSETS WAS TAKEN AS NIL FOR THE PURPOSE OF DEPRECIATION UNDER SECTION 32 R.W.S. 43(1) EXPLANATION 10. BALANCE SUM OF RS.24,44,38,406/- 5 WAS GIVEN IN CASH BY THE NDDB WHICH WAS CREDITED BY THE ASSESSEE TO RESERVE AND SURPLUS AS CAPITAL RECEIPT. THE ASSESSI NG OFFICER SOUGHT TO TREAT THE SUM OF RS.24,44,38,406/- AS REVENUE RECEI PT. IT WAS EXPLAINED TO THE ASSESSING OFFICER THAT ASSESSEE COMPANY IS UNDE R OBLIGATION TO KEEP THIS SUM IN LONG TERM FINANCIAL INSTRUMENTS AS MAY BE DECIDED BY A COMMITTEE CONSTITUTE BY THE BOARD OF DIRECTORS OF T HE ASSESSEE COMPANY WHICH HAS BEEN ACTUALLY CONSTITUTED FOR THIS PURPOS E. FURTHER AS PER AGREEMENT WITH NDDB THE ASSESSEE IS ENTITLED ONLY T O UTILIZE THE INTEREST RECEIVED FROM SUCH INVESTMENT ONLY FOR THE PURPOSES OF RESEARCH AND DEVELOPMENT IN THE FIELD OF OIL AND OIL SEEDS. THE GRANT SO RECEIVED HAS BEEN ACCOUNTED IN CONFORMITY WITH THE ACCOUNTING ST ANDARD -12. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE CONT ENTION OF ASSESSEE THAT ABOVE GRANT IS A CAPITAL RECEIPT AND HELD IT TO BE A REVENUE RECEIPT FOR THE FOLLOWING REASONS:- 3.6 I HAVE GONE THROUGH THE SUBMISSION OF THE ASS ESSEE, BUT THE SAME IS NOT FOUND TENABLE. HERE, IT IS SIGNIFICANT TO NOTE THAT NDDB HAS GIVEN RS.24,44,38,406/- IN CASH. THIS AMOUNT IS GIV EN FOR THE RESEARCH WORK WHICH IS THE INTEGRAL PART OF CARRYIN G OUT OF THE BUSINESS OF THE ASSESSEE. AS MENTIONED ABOVE, THE U NIT WAS ALREADY EXISTING AND FUNCTIONING AS A PART OF NDDB AND THER EFORE, THIS AMOUNT IS CERTAINLY NOT PAID FOR SETTING OF NEW UNI T. 3.7 THE ASSESSEE COMPANY HAS TO IMPROVE THE PRODUCTS WI TH LOWER COST IN ORDER TO GAIN MORE PROFITS WHICH IS ESSENTIAL FO R SURVIVING IN THE MARKET. THEREFORE, THIS RESEARCH ACTIVITY IS BEING CARRIED OUT FOR THE BETTERMENT OF PRODUCTS AND HENCE THE SAME IS VE RY MUCH A PART OF ASSESSEES BUSINESS. 3.8 MOREOVER, THERE IS NO PROHIBITORY CLAUSE WHEREBY IT IS INTENDED THAT IF ASSESSEE COMPANY DOES NOT APPLY THE AMOUNT TO RESEARCH AND DEVELOPMENT WORK AND UTILIZES THIS FUND IN ANY OTHER MANNER, ALL SECURITIES AND GRANT WILL BE RECOVERED BACK. NO PROHIBITORY OR RESTRICTIVE CONDITIONS HAVE BEEN PROVIDED IN THE CL AUSE 10 OF THE AGREEMENT. THE TOTAL CONTROL OVER THE INVESTMENTS A ND THE RIGHT FOR CHANGING THE NATURE OF INVESTMENT IS OF ASSESSEE CO MPANY AND FOR 6 ALL LEGAL PURPOSES, THE OWNERSHIP ON THE FUND OF RS .24,44,38,406/- IS OF DOFCO, THEREFORE, CONSIDERING ALL THE FACTS, THE SAME CONSTITUTES REVENUE RECEIPTS IN THE HANDS OF ASSESS EE COMPANY. 3.9 ANY GRANT MAY WHATEVER BE THE NATURE, GRANTED TO A COMPANY AFTER IT HAS STARTED PRODUCTION, IS A REVENUE RECEIPT. TH E PAYMENT OF SUBSIDY TO ASSIST AN ASSESSEE IN CARRYING ON TRADE OR BUSINESS AS DISTINCT FROM THE SUBSIDY TO HELP THE ASSESSEE TO S ET UP AN INDUSTRY OR COMPLETE A PROJECT IS PRODUCTION INCENTIVE OR OP ERATIONAL SUBSIDY IS NOT A CAPITAL SUBSIDY. HENCE, IT IS CHAR GEABLE TO TAX AS REVENUE RECEIPT. THE SAME VIEW WAS HELD IN THE DECI SION OF SAHANEY STEEL & PRESS WORKS INDIA LTD. VS. CIT 228 ITR 253 (SC). 3.10 AS REGARDS ACCOUNTING STANDARD, HONBLE SUPREME COU RT HELD IN SEVERAL CASES THAT THE TRUE NATURE AND QUALITY OF T HE RECEIPT AND NOT THE HEAD UNDER WHICH IT IS ENTERED IN THE ACCOUNT B OOKS AS WOULD BE DECISIVE IN DETERMINING ITS TAXABILITY. THEREFOR E, THE EXISTENCE OR ABSENCE OF ENTRIES IN BOOKS OF ACCOUNT OF ASSESSEE CANNOT BE DECISIVE OR CONCLUSION IN THE MATTER. RELIANCE IS P LACED ON THE DECISION OF KEDARNATH JUTE MANUFACTURING CO. LTD. V S. CIT 82 ITR 363 (SC) AND CHOWRINGHEE SALES BUREAU (P) LTD. VS. CIT 87 ITR 542 (SC). 9. BEFORE LD. CIT(A) ASSESSEE RAISED SEVERAL ARGUME NTS AND RELIED ON VARIOUS AUTHORITIES. ASSESSEES ARGUMENTS WERE SUMM ARIZED BY LD. CIT(A) UNDER PARA 6 OF HIS ORDER AS UNDER :- (I) THAT THE TRANSACTION IS GOVERNED BY A WRITTEN AGREEMENT WHICH SHOULD DETERMINE THE CHARACTER OF THE RECEIPT IN TH E HANDS OF THE APPELLANT. (II) THAT THE FUNDS WERE LYING AS CAPITAL FUNDS IN THE B OOKS OF NDDB AND THE GRANT HAS BEEN GIVEN OF THE SAID CAPITAL FU NDS. (III) THAT THE APPELLANT AGREED TO IDENTIFY THIS AMOUNT A S AN EAR MARKED CORPUS AND ALSO IT AGREED TO KEEP THE AMOUNT INVESTED IN THE LONG TERM FINANCIAL INSTRUMENTS. (IV) THAT IT FLOWS FROM (III) ABOVE THAT THERE WAS A PRO HIBITION ON THE USE OF THE GRANT FUNDS AND THE GRANT HAD BEEN EARMA RKED AS A 7 CORPUS CONTRIBUTION WHICH COULD NOT BE CONSIDERED I NCOME UNDER SECTION 2(24)(IA) R.W.S. 11,12,12A & 13 OF TH E ACT. (V) THAT THE GRANT WAS GIVEN AS AN AID TO SET UP THE OI L AND FOOD DIVISION OF THE NDDB AS A NEW COMPANY. (VI) THAT IT WAS NOT THE CASE THAT TO CARRY ON R & D WAS THE MAIN BUSINESS OF THE APPELLANT. (VII) THAT THE GRANT WAS GIVEN TO PURCHASE LONG TERM FINA NCIAL INSTRUMENTS AND NOT FOR THE PURPOSE OF ASSISTING TH E APPELLANT IN ITS BUSINESS AND, THE AMOUNT GIVEN FOR PURCHASE OF SECURITIES WAS FOR CREATION OF CAPITAL ASSETS. (VIII) THAT NO BUSINESS OPERATIONS TOOK PLACE BETWEEN THE DATEOF INCORPORATION OF THE COMPANY AND THE DATE OF SEPARA TION OF THE DIVISION FROM NDDB AND THAT THE REGULAR BUSINESS AC TIVITY OF THE APPELLANT COMPANY STARTED ONLY ON TRANSFER OF B USINESS FROM NDDB AND, THEREFORE, THE GRANT WAS NOT RECEIVED AFT ER IT HAD STARTED PRODUCTION. (IX) THAT THE USE OF ACCOUNTING STANDARD IT WAS MANDATOR Y AND UNDER IT THE GRANT WAS TREATED AS CAPITAL RECEIPT. (X) THAT THEREFORE, FOR ALL THESE REASONS THE GRANT WAS A CAPITAL RECEIPT IN THE HANDS OF THE APPELLANT. 10. THE CIT(A) REJECTED THESE ARGUMENTS. HE HAS HEL D AS UNDER :- (1) NOMENCLATURE GIVEN BY THE TRANSACTING PARTY IS NOT CONCLUSIVE TO UNDERSTAND THE TRUE AND REAL CHARACTE R OF A PARTICULAR RECEIPT. THEREFORE, ABOVE ARGUMENTS OF A SSESSEE AS COVERED IN PARA 6(I), 6(II) AND 6(III) ARE NOT A CCEPTABLE. (2) THE NATURE OF FUNDS IN THE HANDS OF PAYER IS NON- DETERMINATIVE OF CHARACTER OF THE RECEIPT IN THE HA NDS OF RECIPIENT. A CAPITAL RECEIPT IN THE HANDS OF ONE MA Y BECOME INCOME IN THE HANDS OF RECEIVER. HE REFERRED TO THE DECISION IN THE CASE OF CIT VS. PRESIDENCY CO-O P. HOUSING SOCIETY LTD. (1995) 216 ITR 321,325 (BOM); CIT VS. KAMAL BEHARI LAL SINGHA (1971) 82 ITR 460 (SC). 8 (3) AN OBLIGATION TO USE THE INCOME IN A PARTICULAR MAN NER DOES NOT REMOVE IT FROM THE CATEGORY OF INCOME. EVE N WHEN THE OBLIGATION TO USE IT IN A PARTICULAR MANNE R FORMS A PART OF AN ORIGINAL CONTRACT/AGREEMENT GIVING RIS E TO SUCH INCOME AND WILL NOT ALTER ITS CHARACTER. HE RE FERRED TO THE DECISION OF APEX COURT IN E.D.SASSOON & CO. VS. CIT (1954) 26 ITR 27 (SC) TO THIS EFFECT. FROM THIS LD. CIT(A) INFERRED THAT EVEN IF ASSESSEE WAS OBLIGED T O USE THE GRANT IN A PARTICULAR MANNER I.E. TO KEEP IT IN VESTED IN THE FORM OF LONG TERM INSTRUMENT AS PER AGREEMENT I T DID NOT AFFECT THE TRUE CHARACTER OF THE RECEIPT. (4) THE ASSESSEE IS NOT CLEAR AS TO THE PURPOSE FOR WHI CH THE GRANT WAS GIVEN. AT ONE POINT IT IS STATED THAT THE GRANT WAS GIVEN FOR THE PURPOSE OF SETTING UP OF THE OIL AND FOOD DIVISION OF NDDB AS A NEW COMPANY BUT AT ANOTHER POINT IT STATED THAT GRANT WAS GIVEN FOR PURCHASE O F LONG TERM FINANCIAL INSTRUMENT/SECURITIES. IN FACT GRANT IS NOT GIVEN EITHER OF THE TWO BUT IS GIVEN FOR RESEARCH A ND DEVELOPMENT IN OIL-SEEDS, OIL AND FOOD RELATED ACTI VITIES. SINCE RESEARCH AND DEVELOPMENT AND EXPENDITURE THER EON CONSTITUTE REVENUE ACTIVITIES, THEREFORE, GRANT GIV EN FOR THAT PURPOSE ESTABLISH REVENUE NATURE. RESEARCH AND DEVELOPMENT IS A REGULAR BUSINESS ACTIVITY, THEREFO RE, GRANT SO GIVEN IS REVENUE NATURE. (5) BUSINESS ACTIVITY WAS ALWAYS GOING ON IN THE DIVISI ON CONCERNING PRODUCTION OF OIL. EARLIER IT WAS UNDER THE CONTROL OF NDDB AND NOW IT IS WITH THE ASSESSEE COMPANY. THE PRODUCTION AND THE BUSINESS OF THE UNI TY CONTINUE. THEREFORE, GRANT WAS RECEIVED FOR THE STA RT OF PRODUCTION. (6) IT IS INCORRECT TO SAY THAT GRANT WAS NOT GIVEN FOR CORPUS OF THE ASSESSEE COMPANY BUT TOWARDS THE NORMAL BUSINES S ACTIVITY. FURTHER THE CONCEPT OF CORPUS IS IN THE C ONTEXT OF CONTRIBUTION MADE TO CHARITABLE TRUST FOR CHARITABL E PURPOSES. IT HAS NO APPLICATION TO A COMMERCIAL ENT ERPRISE CARRYING ON ACTIVITY IN THE NATURE OF BUSINESS. 11. THUS HOLDING THAT GRANT WAS GIVEN FOR NORMAL BU SINESS ACTIVITY, LD. CIT(A) HELD IT AS REVENUE RECEIPT AND AFFIRMED THE ORDER OF A.O. 9 12. BEFORE US THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT NDDB VIDE AGREEMENT DATED 23 RD MARCH, 2001 TRANSFERRED ITS EXISTING OIL RELATED ACTIVITIES TO THE ASSESSEE COMPANY W.E.F. 1.4.2001. BY VIRTUE OF THE SAID AGREEMENT NDDB HAS - (I) CONTRIBUTED INITIAL CAPITAL OF RS.5 CRORE; (II) TRANSFERRED ALL EXISTING ASSETS AND LIABILITIES REL ATING TO OIL RELATED ACTIVITIES TO DOFCO; (III) PROVIDED WORKING CAPITAL LOAN WITH A CAP OF RS120 C RORES. THE LOAN WOULD BEAR INTEREST AT THE RATE OF SBIPLR PLUS 1.5%.; (IV) INTEREST FREE LOAN OF RS.135 CRORES AS SUPPORT FUND S; AND (V) RESEARCH AND DEVELOPMENT GRANTS OF RS.30 CRORES SPE CIFICALLY FOR RESEARCH AND DEVELOPMENT IN OILSEEDS, OIL AND F OOD RELATED ACTIVITIES. RS.5,55,61,594/- IN THE FORM OF FIXED A SSETS AND BALANCE IN THE FORM OF FIXED DEPOSIT AS CORPUS FUND . 13. THE LD. AUTHORISED REPRESENTATIVE DREW OUR ATTE NTION TO CLAUSE 10 OF THE AGREEMENT ACCORDING TO WHICH ASSESSEE HAD AG REED TO AMOUNT RECEIVED IN CASH AS A EARMARKED CORPUS AND KEEP THE AMOUNT INVESTED IN THE LONG TERM FINANCIAL INSTRUMENT. THE ASSESSEE AL SO AGREED TO UTILIZE THE AMOUNT OF INTEREST EARNED THEREON FOR THE RESEARCH AND DEVELOPMENT ACTIVITIES. THUS THE GRANT OF RS.24.44 CRORES WAS O UT OF CAPITAL FUNDS OF NDDB AND TRANSFERRED TO THE ASSESSEE COMPANY FOR CA RRYING OUT RESEARCH AND DEVELOPMENT ACTIVITIES OUT OF INTEREST EARNED F ROM THE INVESTMENT OF SUCH CASH. THERE IS SPECIFIC STIPULATION IN THE AGR EEMENT TO USE THE INTEREST FOR THE SAID PURPOSE. INTEREST EARNED THEREON HAS B EEN TREATED AS INCOME AND TAXED ACCORDINGLY WHILE EXPENDITURE INCURRED FO R RESEARCH AND DEVELOPMENT HAS BEEN SHOWN AS EXPENDITURE, CLAIMED AS DEDUCTION AND ALLOWED ACCORDINGLY BY THE DEPARTMENT. NDDB HAS GIV EN OTHER CAPITAL GRANT AS A LOAN TO THE ASSESSEE. EVERY ITEM SO GIVE N CANNOT BE TREATED AS REVENUE RECEIPT. ONCE THERE IS A CONTROL OF NDDB AN D DIRECTION TO THE ASSESSEE COMPANY TO USE ONLY INTEREST FROM THE INVE STMENT OF THE CASH 10 FUNDS FOR THE PURPOSE OF RESEARCH AND DEVELOPMENT T HEN THERE IS NO DISCRETION LEFT WITH THE ASSESSEE COMPANY TO USE IT THE WAY IT WOULD HAVE LIKED OTHERWISE. CORPUS HAS TO BE KEPT INTACT, INVE STED IN THE LONG TERM INVESTMENTS AND ONLY INTEREST FROM SUCH INVESTMENT HAVE TO BE USED FOR THE PURPOSE OF RESEARCH AND DEVELOPMENT. HE SUBMITT ED THAT RELIANCE OF THE ASSESSING OFFICER AND CIT(A) ON THE DECISION OF SUPREME COURT IN SAHANEY STEEL & PRESS WORKS INDIA LTD. VS. CIT 228 ITR 253 (SC) IS MISPLACED. PAYMENTS RECEIVED IN THAT CASE WERE IN T HE NATURE OF SUPPLEMENTARY TRADE RECEIPTS. THE ASSESSEE IN THAT CASE WAS FREE TO USE THE MONEY IN ITS BUSINESS ENTIRELY AS CLAIMED. SUBSIDY WAS GIVEN AFTER COMMENCEMENT OF PRODUCTION FOR CARRYING OUT THEIR B USINESS ACTIVITIES. BUT IN THE PRESENT CASE GRANT WAS GIVEN WITH SPECIF IC AGREEMENT THAT IT WOULD BE INVESTED IN LONGTERM INVESTMENTS, ONLY INT EREST WOULD BE UTILIZED IN RESEARCH AND DEVELOPMENT. FURTHER NO PR ODUCTION WAS STARTED TILL THE RECEIPT OF THE GRANT BY THE ASSESSEE COMPA NY. FURTHER FUNDS AS SUCH DID NOT BECOME THE PROPERTY OF THE ASSESSEE CO MPANY AS IT IS ONLY 100% SUBSIDIARY OF NDDB. THE LD. AUTHORISED REPRESE NTATIVE RELIED ON THE FOLLOWING AUTHORITIES :- 1. KALAPANA PALACE VS. CIT (ALL) 275 ITR 365 HELD, THAT EVEN THOUGH THE GRANT-IN-AID WAS GIVEN A FTER THE BUSINESS HAS BEEN SET UP, IT WOULD STILL BE RELATAB LE TO THE CONSTRUCTION OF CINEMA HALLS. THUS, IT WOULD BE A C APITAL RECEIPT. 2. CIT VS. KANPUR SAHKARI MILK BOARD LTD. 144 TAXMA AN 779 (ALL HIGH COURT) IN THIS CASE, GRANT WAS GIVEN FROM GOVERNMENT FOR R EORGANIZATION OF SOCIETY AND SAME WAS TO BE UTILIZED SPECIFICALLY FOR WORKING CAPITAL AND FOR NO OTHER PURPOSE. EVEN THEN THE HON BLE HIGH COURT, AFTER CONSIDERING SAHNEY STEEL & PAPER WORKS LTD. HELD THAT THE GRANT WAS CAPITAL RECEIPT AND NOT A REVENU E RECEIPT. 11 3. DCIT VS. RELIANCE INDUSTRIES LTD. (2004) 88 ITD 273 (MUM)(SB) THE TRIBUNALS OBSERVATIONS MADE ON THE BASIS OF TH E OBSERVATIONS OF THE SUPREME COURT IN SAHNEY STEEL & PRESS WORKS LTD.S CASE (SUPRA) ALSO SHOWED THAT THE TRIBUNAL WAS ALIVE TO THE DISTINCTION BETWEEN THE CHARACTER OF THE SUBSIDY GIVEN WITH THE OBJECT OF PROMOTING INDUSTRIAL GROWTH IN A PARTICULAR AREA AN D THE SUBSIDY GIVEN CONDITIONAL UPON THE COMMENCEMENT OF PRODUCTI ON AND AFTER ACTUAL COMMENCEMENT OF PRODUCTION. IT IS NOT CORREC T TO UNDERSTAND THE JUDGEMENT AS LAYING DOWN THE BROAD PROPOSITION THAT WHEREVER THE SUBSIDY IS GIVEN AFTER THE COMMENCEMENT OF PROD UCTION AND CONDITIONAL UPON THE SAME, IT SHOULD BE TREATED AS A REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE, IRRESPECTIVE OF THE OBJECT FOR WHICH THE SUBSIDY IS GRANTED. THE OBJECT FOR WHICH THE SUBSIDY IS GRANTED TAKES PRIMACY OVER THE FACT THAT IT IS GIVE N AFTER THE COMMENCEMENT OF PRODUCTION AND CONDITIONAL UPON THE SAME. THAT THE SUPREME COURT ITSELF RECOGNIZED THAT POSITION H AD BEEN AMPLY MADE CLEAR IN ITS OBSERVATION. THUS THE PURPOSE AND OBJECT OF THE SCHEME UNDER WHICH THE SUBSIDY IS GIVEN IS OF MORE FUNDAMENTAL IMPORTANCE THAN THE FACT THAT THE SUBSIDY IS RECEIV ED AFTER THE COMMENCEMENT OF PRODUCTION OR CONDITIONAL UPON IT. HENCE, THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE ASSESS MENT YEAR 1985- 86 HAD CORRECTLY INTERPRETED AND UNDERSTOOD THE RAT IO OF THE JUDGEMENT OF THE SUPREME COURT IN SAHNEY STEEL & PR ESS WORKS LTD.S CASE (SUPRA). 4. ADDL.CIT VS. CHODAVARAM CO-OP. SUGARS LTD. (2003 ) 86 ITD 139 (VISAKHA) THE SUPREME COURT LAID DOWN A PRINCIPLE BY STATING THAT THE CHARACTER OF SUBSIDY IS TO BE DETERMINED HAVING REG ARD TO THE PURPOSE FOR SUBSIDY IS GIVEN. IF THE PURPOSE IS TO HELP THE ASSESSEE, TO SET UP ITS BUSINESS OR COMPLETE A PROJECT, THE S UBSIDY IS TO BE TREATED AS CAPITAL RECEIPT. THE SOURCE OF THE FUND IS IMMATERIAL. IN THE ASSESSEES CASE, THE SUBSIDY WAS GIVEN FOR THE PURPOSE OF EXPANSION OF PROJECT AND THE ASSESSEE HAD ALSO DISC HARGED ITS OBLIGATION IN UTILIZING THE RECEIPT FOR SPECIFIC PU RPOSE, WHICH HAD BEEN ACCEPTED BY THE GOVT. 12 5. R.B.NARAIN SINGH SUGAR MILLS LTD. VS. DCIT (200 3) 85 ITD 552 (DELHI) THE LEGAL POSITION AS ENUNCIATED BY VARIOUS COURTS EMERGING FROM CATENA OF CASES MANIFESTLY DRAWS A LINE OF DISTINCT ION BETWEEN A CAPITAL SUBSIDY AND REVENUE SUBSIDY. WHEREAS THE FO RMER IS DIRECTED TOWARDS THE EXPANSION OF CAPITAL BASE AND, ACCORDINGLY, FALLS BEYOND THE AMBIT OF TAXATION, THE LATTER HELP S THE RECIPIENT IN RECOUPING THE REVENUE EXPENSES AND CANNOT ESCAPE TH E TAXATION. APPLYING THE SAID DISTINCTION TO THE INSTANT CASE, IT BECAME PALPABLE THAT THE CASE OF THE ASSESSEE FELL IN THE FORMER CA TEGORY AND HENCE THE AMOUNT OF SUBSIDY COULD NOT ATTRACT TAX. THE LD. AUTHORISED REPRESENTATIVE ALSO RELIED ON TH E CASE LAWS IN THE CASE OF CIT VS. PONNI SUGARS & CHEMICALS LTD. 306 ITR 39 2 (SUPREME COURT). 14, ON THE OTHER HAND LD. DEPARTMENTAL REPRESENTATI VE RELIED ON THE ORDERS OF CIT(A) AND ASSESSING OFFICER. HE SUBMITTE D THAT RESEARCH AND DEVELOPMENT IS REVENUE ACTIVITY. GRANT IS GIVEN BY NDDB BUT THERE IS AS SUCH NO CONDITION IMPOSED BY NDDB THAT IT WOULD BE ONLY AS CORPUS. IT IS A SELF IMPOSED CONDITION BY THE ASSESSEE THAT IT WI LL KEEP THE FUNDS IN LONG TERM INVESTMENT AND UTILIZE THE INTEREST THEREON FO R RESEARCH AND DEVELOPMENT ACTIVITIES. IN FACT ENTIRE FUNDS WERE G IVEN FOR RESEARCH AND DEVELOPMENT ACTIVITIES, THEREFORE, THEY ARE REVENUE RECEIPTS IN NATURE. FURTHER CORPUS IS FOR TRUST ONLY CREATED BY THE ASS ESSEE FOR ITS OWN BENEFIT AND NOT AS A CONDITION IMPOSED FOR THE PURPOSE OF C ONFERRING THE GRANT. NDDB HAS IN FACT GIVEN ENTIRE MONEY FOR RESEARCH AN D DEVELOPMENT. FURTHER THE NATURE OF RECEIPT IS TO BE DECIDED AT T HE POINT OF TRANSFER AND IT IS IMMATERIAL HOW IT IS SUBSEQUENTLY PRESERVED, SAF EGUARDED, UTILIZED ENTIRELY WHETHER THE PRINCIPAL OR THE INTEREST THER EON. CONDUCT OF THE ASSESSEE COMPANY CANNOT BECOME THE CONDITION FOR GI VING GRANT BY NDDB WHICH HAS GIVEN THE GRANT AS A PART OF ENTIRE SCHEME OF CREATING A SUBSIDIARY AND THEN FOR ENCOURAGING RESEARCH AND DE VELOPMENT IN SUCH 13 SUBSIDIARY. IT IS ONE THING TO GIVE GRANT AS A COND ITION AND IT IS ANOTHER THING TO ACCEPT A GRANT WITH A CONDITION. IN THE FO RMER LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT CONDITION WILL DECIDE THE NATURE OF THE GRANT BUT IN THE LATTER ITS IMPOSED CONDITIONS ARE INCONS EQUENTIAL IN DETERMINING THE NATURE OF GRANT. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW ASSESSEE DESERVES TO SUCCEED. THE UNDISPUTED FACTS ARE ALREADY NARRATED ABOVE. THE ND DB HAS GIVEN VARIOUS GRANTS AND LOANS TO ASSESSEE COMPANY AFTER IT BEING CREATED AS 100% SUBSIDIARY. RS.5.55 CRORES BEING THE VALUE OF ASSETS INVOLVED IN RESEARCH AND DEVELOPMENT ARE TRANSFERRED TO THE ASS ESSEE COMPANY AND BALANCE OF RS.24.44 CRORES IS TRANSFERRED IN CASH W HICH WAS IN THE FORM OF FIXED DEPOSIT. CLAUSE -10 OF THE AGREEMENT DATED 23 RD MARCH, 2001 BETWEEN NDDB AND DOFCO (I.E. ASSESSEE COMPANY) READ S AS UNDER :- 10. NDDB FURTHER AGREES TO GIVE A GRANT OF RS.30 C RORE TO DOFCO FOR RESEARCH AND DEVELOPMENT IN OILSEEDS, OIL AND FOOD RELATED ACTIVITIES. AN AMOUNT OF RS.6.06 CRORE, BEING THE VALUE OF ASSETS BELONGING TO DAL ANALOGUE PROJECT AND R & D ACTIVITIES OF THE NDDB A S PER SCHEDULE III WILL BE ADJUSTED AGAINST THE GRANT AND BALANCE OF R S.23.94 CRORE WILL BE GIVEN IN CASH. DOFCO AGREES TO IDENTIFY THE AMOUNT RECEIVED IN CASH AS AN EARMARKED CORPUS AND KEEP THE AMOUNT INVESTED IN THE LONG TERM FINANCIAL INSTRUMENTS AS MAY BE DECIDED FROM TIME T O TIME BY THE COMMITTEE CONSTITUTED BY THE BOARD OF DOFCO. THE DO FCO SHALL UTILIZE THE AMOUNT OF INTEREST EARNED THEREON FOR T HE RESEARCH AND DEVELOPMENT ACTIVITIES. 16. IN ADDITION CLAUSE -9, NDDB FURTHER PROVIDES TH AT NDDB AGREES TO GIVE A LOAN OF RS.135 CRORE AS SUPPORT FUNDS TO BE KEPT UNDER LONG TERM DEPOSITS. NO DOUBT THE FIRST SENTENCE OF CLAUSE -10 PROVIDES THAT GRANT OF RS.30 CRORE TO DOFCO IS FOR RESEARCH AND DEVELOPMEN T IN OIL SEEDS, OIL AND FOOD RELATED ACTIVITIES. HOWEVER, CLAUSE 10 CAN NOT BE READ IN PART OR 14 FOR THAT MATTER ENTIRE AGREEMENT HAS TO BE READ AS A WHOLE SO AS TO FIND OUT INTENT AND PURPOSE FOR WHICH THIS GRANT OR OTHER GR ANTS ARE GIVEN BY NDDB. CLAUSE -10 FURTHER PROVIDES THAT OUT OF RS.30 CRORES RS.6.06 CRORES GOES FOR FIXED ASSETS WHICH IS UNDISPUTEDLY CAPITAL ASSETS. THE BALANCE SUM THOUGH MENTIONED AS RS.23.94 CRORE BUT FINALLY IT COMES TO RS.24.44 CRORES WAS GIVEN IN CASH. ASSESSEE COMPANY HAS AGREED TO EAR MARK THIS SUM AS CORPUS AND KEPT THE AMOUNT INVESTE D IN LONG TERM FINANCIAL INSTRUMENT TO BE DECIDED BY A COMMITTEE C ONSTITUTED BY BOARD OF DIRECTORS OF ASSESSEE COMPANY AND UTILIZE ONLY T HE INTEREST EARNED THEREON FOR THE RESEARCH AND DEVELOPMENT ACTIVITIES . INTENT AND PURPOSE OF THE GRANT OF RS.30 CRORES CAN BE GAUZED FROM THE FI RST LIMB OF THIS CLAUSE WHICH PROVIDES FOR GRANT IN FORM OF FIXED DEPOSITS OF THE VALUE OF RS.5.55 CRORES (MENTIONED AS 6.06 CRORES IN THE CLAUSE). IF THE FIRST PART OF THE RECEIPT IS CAPITAL THEN THERE IS NO REASON TO HOLD THAT NDDB INTENDED TO GIVE OTHER PART AS REVENUE AND IT IS ONLY THE ASSES SEE WHICH IS TREATING IT AS CAPITAL IN NATURE AND AGREEING TO UTILIZE THE INTER EST THEREON FOR REVENUE PURPOSES (FOR RESEARCH AND DEVELOPMENT ACTIVITIES). INVESTMENTS IN LONG TERM FINANCIAL INSTRUMENTS ARE SHOWN IN THE BALANCE SHEET FROM YEAR TO YEAR AND INTEREST THERE FROM HAS BEEN TAXED AS INCO ME BY THE REVENUE. THERE IS NO PROTECTIVE ASSESSMENT OF SUCH INTEREST INCOME. THEY ARE TAXED SUBSTANTIVELY BY THE DEPARTMENT. IT IS NOT DISPUTED THAT RESEARCH AND DEVELOPMENT ACTIVITIES CONSTITUTE ACTIVITIES ON WHI CH EXPENDITURE INCURRED WOULD BE REVENUE IN NATURE BUT THAT DOES NOT AUTOMA TICALLY LEAD TO THE INFERENCE THAT FUNDS EARMARKED FOR SUCH ACTIVITIES WOULD ALSO BE REVENUE IN NATURE. FURTHER IT IS INCORRECT TO SAY THAT FUND S OF RS.30 CRORES INCLUDING FIXED ASSETS OF RS.5.55 CRORRES WERE GIVE N TO THE ASSESSEE DURING THE COURSE OF PRODUCTION. THEY WERE GIVEN AT THE TIME OF CREATION OF ASSESSEE COMPANY WHEN ASSESSEE COMPANY HAD NOT T AKEN OVER THE ONGOING OPERATION OF THE OIL UNIT OF NDDB. THE TRAN SFER OF ASSET TOOK 15 PLACE ON 1.4.2001 AS PER CLAUSE 1 OF THE AGREEMENT WHEREAS AGREEMENT TO TRANSFER THE FUNDS TOOK PLACE ON 22 ND MARCH, 2001. 17. THE ARGUMENTS OF LD. AUTHORISED REPRESENTATIVE CANNOT BE BRUSHED ASIDE THAT GRANT GIVEN TO THE ASSESSEE COMPANY IS A LIABILITY AND IS REFUNDABLE TO THE NDDB. THE LIABILITY CANNOT BE TRE ATED AS INCOME EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF LAW I.E. ONLY AFTER INVOKING SECTION 68. 18. ARGUMENTS OF LD. DEPARTMENTAL REPRESENTATIVE TH AT IT IS UNILATERALLY ASSURED BY ASSESSEE COMPANY TO THE NDDB AND HENCE S UCH ASSURANCE CANNOT ALTER THE CHARACTER OF RECEIPT, IS NOT ACCEP TABLE BECAUSE LAST SENTENCE OF CLAUSE -10, DOFCO WILL UTILIZE THE AMO UNT OF INTEREST EARNED THEREON FOR THE RESEARCH AND DEVELOPMENT CLEARLY G IVES MANDATE BY THE NDDB TO ASSESSEE COMPANY ONLY TO UTILIZE INTEREST. THUS STRINGS ARE ATTACHED TO THE FUND MEANING THEREBY THAT NDDB INTE NDED TO RETAIN CONTROL OVER THE CORPUS AND PERMITS DISCRETION TO T HE ASSESSEE COMPANY IN RESPECT OF INTEREST EARNED FROM SUCH LONG TERM INVE STMENTS. HONBLE SUPREME COURT IN CIT VS. PONNI SUGARS & CHEMICALS L TD. (SUPRA) HAS CLEARLY LAID DOWN THE PURPOSIVE TEST TO DETERMINE THE NATURE OF SUBSIDY GIVEN BY THE GOVERNMENT TO ITS SUBSIDIARY. THE CHAR ACTER OF RECEIPT OF A SUBSIDY IN THE HANDS OF ASSESSEE UNDER A SCHEME SHO ULD BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH SUBSIDY IS GR ANTED. THE POINT OF TIME WHEN THE SUBSIDY IS PAID IS NOT RELEVANT. THUS THE HONBLE SUPREME COURT HAS TAKEN A DIFFERENT LINE OF THE ARGUMENT TH AT WHAT WAS GIVEN IN SAHNEY STEEL & PRESS WORKS LTD. VS. CIT (SUPRA) WH EN IT WAS HELD THAT POINT OF TIME OF GIVING SUBSIDY IS RELEVANT. THUS S OURCE AND THE POINT OF TIME IS NOT MATERIAL. IF THE OBJECT OF THE SUBSIDY IS TO ENABLE THE ASSESSEE MORE PROFITABLE THEN THE RECEIPT IS OF REVENUE ACCO UNT. IF THE OBJECT OF THE 16 SUBSIDY IS TO ENABLE THE ASSESSEE TO SET UP A NEW U NIT OR TO EXTENT ITS EXISTING UNIT THEN THE RECEIPT OF THE SUBSIDY WOULD BE ON CAPITAL ACCOUNT. IN THE PONNI SUGARS & CHEMICALS LTD. (SUPRA) CASE S UBSIDY WAS GIVEN ONLY FOR REPAYING THE LOAN WHICH WAS TAKEN BY THE A SSESSEE TO SET UP A NEW UNIT OR SUBSTANTIAL EXPANSION OF THE EXISTING U NIT. THE SUBSIDY RECEIVED BY THE ASSESSEE WAS NOT IN THE COURSE OF T RADE BUT WAS OF A CAPITAL NATURE. IN THE PRESENT CASE PURPOSE FOR WHI CH GRANT IS GIVEN BY NDDB IS RESEARCH AND DEVELOPMENT BUT THE RIGHT OF T HE ASSESSEE COMPANY IS RESTRICTED TO UTILIZE ONLY INTEREST ON THE PRINC IPAL IN SUCH ACTIVITIES. THEREFORE, IN FACT IT IS AN INTEREST ON SUCH LONG T ERM INVESTMENT WHICH IS THE SUBSIDY OF REVENUE IN NATURE AND NOT THE PRINCI PAL SUM OVER WHICH NDDB HAS KEPT A DIRECT CONTROL BY NOT PERMITTING TH E ASSESSEE COMPANY TO UTILIZE IT AT ITS FREE WILL. 19. IN VIEW OF ABOVE DISCUSSION, WE HOLE THAT RECEI PT OF RS.24.44 CRORES IS CAPITAL IN NATURE AND THEREFORE IS NOT TA XABLE. AS A RESULT, THIS GROUND OF ASSESSEE IS ALLOWED. 20. GROUND NO.3 RELATES TO LEASE RENT EXPENSES OF R S.7,84,707/-. IT WAS DISALLOWED TREATING IT AS CAPITAL IN NATURE. ASSESS EE COMPANY HAD TAKEN ON LEASE AT KANDLA (FOR 30 YEARS), AT NARELA ( PERPETU AL LEASE) & KOLKATA ( FOR 30 YEARS ). INITIAL AMOUNT PAID FOR LEASE HOLD LAND RIGHTS WAS CAPITALIZED. SUBSEQUENTLY LEASE RENT WAS PAID. THE ASSESSING OFF ICER DISALLOWED THE CLAIM ON THE GROUND THAT ASSESSEE HAS ACQUIRED RIGH TS WHICH PROVIDE ENDURING BENEFITS. IT WAS CLAIMED BEFORE LD. CIT(A) THAT AMOUNT WAS PAID FOR USE OF THE ASSETS AND NOT FOR ACQUIRING THE ASS ETS. LD. CIT(A) HELD THAT LEASE RENT IN RESPECT OF KANDLA AND KOLKATA IS REVE NUE IN NATURE AS NO OWNERSHIP RIGHTS ARE GRANTED TO THE ASSESSEE. HOWEV ER, LEASE RENT PAID IN RESPECT OF NARELA IS FOR ACQUIRING PERPETUAL LEASEH OLD RIGHTS FOR 99 YEARS. 17 FOR ALL PRACTICAL PURPOSES IT IS A PERMANENT ASSET IN POSSESSION OF ASSESSEE AND, THEREFORE, EXPENDITURE INCURRED THEREON HAS BE EN CORRECTLY CAPITALIZED. THE LD. AUTHORISED REPRESENTATIVE ON T HE OTHER HAND SUBMITTED THAT OWNERSHIP OF THE LAND VESTED IN THE GOVERNMENT AND BY PAYING ANNUAL LEASEHOLD RENTALS ASSESSEE IS NOT GET TING ANY PERMANENT ASSET WHICH IS ALREADY GIVEN BY PAYING ONE TIME. LD . AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ISSUE IS COVERED IN ITS FAVOUR BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN CIT V S. SUN PHARMACEUTICALS LTD. IN TAX APPEAL NO.274 OF 1999 D ECIDED VIDE ORDER DATED 23 RD MARCH, 2009. 21. ON THE OTHER HAND LD. DEPARTMENTAL REPRESENTATI VE RELIED ON THE DECISION REPORTED IN ENTERPRISING ENTERPRISES VS. D CIT (2007) 293 ITR 437 (SUPREME COURT). THE DEPARTMENTAL REPRESENTATIV E FURTHER SUBMITTED THAT IN THE JUDGMENT REFERRED TO BY THE LD. AUTHORI SED REPRESENTATIVE IN SUN PHARMACEUTICALS LTD.S CASE DECISION OF HONBLE SUPREME COURT IN ENTERPRISING ENTERPRISES VS. DCIT (SUPRA) WAS NEITH ER CITED NOR CONSIDERED AND, THEREFORE, THE DECISION OF HONBLE GUJARAT HIGH COURT IN ABOVE CASE CANNOT BE RELIED ON. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE DECISION IN T HE CASE OF ENTERPRISING ENTERPRISES VS. DCIT (SUPRA) REFERRED BY THE LD. DE PARTMENTAL REPRESENTATIVE, IN THAT CASE ONE FIXED AMOUNT WAS P AID FOR ENTIRE LEASE AND RENTALS WERE PAID BY THE LESSEE TO EXTRACT MINE RALS. THE ASSESSING OFFICER DISALLOWED PROPORTIONATE PART OF RENT. IT W AS HELD BY HONBLE SUPREME COURT THAT LEASE RENT PAID WAS CAPITAL IN N ATURE. HOWEVER, THIS LEASE RENT WAS PAID FOR EXTRACTING MINERALS AND NOT FOR ACQUIRING THE SOURCE. IN THE PRESENT CASE LEASE RENT WAS PAID FOR USING THE LAND WHICH IS 18 A SOURCE. HONBLE GUJARAT HIGH COURT IN SUN PHARMAC EUTICALS HAS REFERRED TO THE DECISION OF HONBLE APEX COURT IN C IT VS. MADRAS AUTO SERVIE LTD. (1998) 233 ITR 468 (SUPREME COURT) WHIC H WAS FOLLOWED BY THE TRIBUNAL IN THAT CASE WHILE DECIDING THE APPEAL IN FAVOUR OF THE ASSESSEE. IN THIS REGARD WE REFER PARA 5 TO PARA 8 OF HONBLE GUJARAT HIGH COURT AS UNDER :- (5) ON BEHALF OF THE RESPONDENT-ASSESSEE LD. SENIO R ADVOCATE INVITED ATTENTION TO DECISION OF KARNATAKA HIGH COURT IN TH E CASE OF CIT VS. HMT LTD.(NO.3) (1993) 203 ITR 820(KAR) TO SUBMIT THAT T HE SAID DECISION HAD CONSIDERED JUDGMENT OF MADRAS HIGH COURT IN THE CAS E OF CIT VS. MADRAS AUTO SERVICE LTD. (1985) 166 ITR 740 (MAD), WHICH H AD SINCE BEEN CONFIRMED BY THE APEX COURT IN THE CASE OF CIT VS. MADRAS AUTO SERVICE LTD. (1998) 233 ITR 468 (SUPREME COURT). THAT THE A PEX COURT DECISION IN CASE OF CIT VS. MADRAS AUTO SERVICES (P) LTD. (S UPRA) AS WELL AS EARLIER DECISION OF THE APEX COURT IN THE CASE OF E MPIRE JUTE CO. LTD. VS. CIT (1980) 124 ITR 1 (SUPREME COURT) HAS BEEN APPLI ED AND FOLLOWED BY THE TRIBUNAL. THUS, THE TRIBUNAL HAVING APPLIED THE RATIO OF APEX COURT DECISIONS HAD MADE AND ORDER IN ACCORDANCE WITH LAW WHICH WAS NOT REQUIRED TO BE INTERFERED WITH. (6) THE FACTS ARE NOT IN DISPUTE. THE LEASE AGREEME NT ENTERED INTO BETWEEN THE ASSESSEE AND GIDC HAS BEEN ANALYSED AND RELEVANT TERMS SUMMARIZED BY THE TRIBUNAL. IT IS NOT NECESSARY TO REFER TO THE SAID TERMS IN DETAIL IN THE PRESENT PROCEEDINGS. SUFFICE IT TO STATE THAT THE TRIBUNAL ON APPRECIATION OF THE DEED IN QUESTION, HAS RECORDED FOLLOWING FINDINGS OF FACT : IT IS NOT DISPUTED THAT THE LAND WHICH HAS BEEN L EASED OUT TO THE ASSESSEE DID NOT CEASE TO BE BELONGING TO GIDC, THE LESSOR. THE LEASE DEED WAS REGISTERED BECAUSE AS PER THE REGIST RATION ACT IT IS COMPULSORILY REGISTRABLE, BUT IT HAS NOT CHANGED TH E OWNERSHIP. IT IS NOT ALSO DISPUTED THAT THE LEASE RENT IS VERY NO MINAL AND BY OBTAINING THIS LAND BY LEASE THE CAPITAL STRUCTURE OF THE COMPANY HAS NOT BEEN CHANGED. THUS BY THIS PAYMENT THE ASSETS OF THE ASSESSEE C OMPANY HAD NOT BEEN INCREASED BECAUSE THE LAND CONTINUED TO BE THE LAND OF GIDC. THE BENEFIT THE ASSESSEE GOT IS ONLY OF AN ADVANTAG E OF CARRYING ON THE BUSINESS MORE PROFITABLY BY PAYING NOMINAL RENT ON THE LAND. 19 THE ISSUE CAN BE CONSIDERED IN ANOTHER ANGLE. IT CA NNOT BE DISPUTED THAT IF THE LAND IS NOT OBTAINED BY THE ASSESSEE IT WOULD NOT BE POSSIBLE FOR IT TO CARRY ON THE BUSINESS. (7) THE TRIBUNAL HAS THUS, AFTER REFERRING TO TWO D ECISIONS OF SUPREME COURT HELD THAT THE LAND IN QUESTION WAS NOT ACQUIR ED BY THE ASSESSEE. THAT MERELY BECAUSE THE DEED WAS REGISTER ED THE TRANSACTION IN QUESTION WOULD NOT ASSUME A DIFFEREN T CHARACTER. THE LEASE RENT WAS VERY NOMINAL. BY OBTAINING THE L AND ON LEASE THE CAPITAL STRUCTURE OF THE ASSESSEE DID NOT UNDER GO ANY CHANGE. THE ASSESSEE ONLY ACQUIRED A FACILITY TO CARRY ON B USINESS PROFITABLY BY PAYING NOMINAL LEASE RENT. (8) IN LIGHT OF THE AFORESAID FINDINGS OF FACT AND THE RATIO OF THE APEX COURT DECISIONS, THE COURT DOES NOT FIND THIS TO BE A CASE WHICH WARRANTS INTERFERENCE. EVEN THE ASSESSING OFFICER HAS RECORD ED THAT THE PAYMENT WAS FOR USE OF LAND. THERE IS NO LEGAL INFIRMITY CO MMITTED BY THE TRIBUNAL. 23. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF JU RISDICTIONAL HIGH COURT, WE HOLD IN FAVOUR OF THE ASSESSEE THAT LEASE RENTAL PAID ARE REVENUE IN NATURE AND ARE ALLOWABLE. THIS GROUND OF ASSESSE E IS ALLOWED. 24. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED AS STATED ABOVE. ORDER PRONOUNCED IN OPEN COURT ON 31/12 /2009 SD/- SD/- (T.K.SHARMA) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 31/12/2009 MAHATA/- 20 COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD