The Commissioner of Income Tax-IV, V. M/s. Novopan Industries Ltd.,

ITTA/334/2013

AI Insights

The case involves an appeal by the Commissioner of Income Tax-IV, Hyderabad against M/s Novopan Industries Ltd., Secunderabad, concerning the assessment year 1998-99. The appeal challenged the Tribunal's decision on three main issues: the classification of royalty payments as an allowable deduction, the treatment of interest on borrowed capital as revenue expenditure, and the classification of refurbishment expenditures as revenue in nature despite bringing enduring benefits. The Tribunal's decisions were based on precedents and principles established by the Supreme Court and previous Tribunal decisions, which the High Court found to be correctly applied.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 734639 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 20-08-2013
• Assessment Year: misc
• Other Referred Cases: CIT Vs. Sugauli Sugar Works (P) Ltd., DCIT Vs. M/s Dolphin Hotels Ltd., T.G.V. Projects and Investments Private Ltd., Vs. ACIT, Guntur Merchants Cotton Press Company Ltd., Vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Borrowed capital; Capital expenditure; Contingent Liability; Enduring benefit; Revenue expenditure; Royalty Commission; Refurbishment
• Section: 36 (1) (iii)

Judgement Text

"HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND HON’BLE SRI JUSTICE K.C.BHANU I.T.T.A.No.334 of 2013 Date: 20.08.2013 Between: The Commissioner of Income Tax-IV, Hyderabad. .....Appellant AND M/s Novopan Industries Ltd., Secunderabad.. ...Respondent HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND HON’BLE SRI JUSTICE K.C.BHANU I.T.T.A.No.334 of 2013 JUDGMENT: (per Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta ) This appeal is preferred against the judgment and order dated 20.07.2007 passed by the learned Tribunal in I.T.A.No.567/Hyd/2002 in relation to the assessment year 1998-99 and sought to be admitted on the following suggested questions of law: (1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the Royalty Commission paid to M/s Oberoi Hotels (P) Ltd., was an ascertained liability and not a contingent liability and was an allowable deduction? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the interest on borrowed capital, which was capitalized by the assessee in its books of account, could be claimed as revenue expenditure linking the same to Section 36(1)(iii) of the Income Tax Act? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in treating the expenditure on account of refurbishment as revenue in nature even though the said expenditure brought in an enduring benefit to the assessee? We have heard the learned Counsel for the appellant and gone through the judgment and order of the learned Tribunal. As far as the first suggested question of law is concerned, the learned Tribunal has correctly held that the liability for payment of royalty had accrued during the relevant period since the assessee has maintained the mercantile system of accounting and it was shown in the books of account. Therefore, this allowance was correct in law. Moreover, it was found that the payment was made. The learned Tribunal has followed the settled principles of law laid down by the Supreme Court in the case of CIT Vs. Sugauli Sugar Works (P) Ltd., reported in (236 ITR 518). The aforesaid issue, according to us, does not require further decision by this Court. The second suggested question of law relates to the refurbishment of expenditure and which was held by the Assessing Officer being capital expenditure. The learned Tribunal following its own decision in the case of DCIT Vs. M/s Dolphin Hotels Ltd., has held that the aforesaid expenditure is revenue in nature. No appeal has been preferred against the earlier decision in the case of T.G.V. Projects and Investments Private Ltd., Vs. ACIT in ITA No.1264/Hyd/2003 for the assessment year 1993-94, on which reliance has been placed by the learned Tribunal. Accordingly, this point is not required to be adjudicated by this Court in this matter. The third point relates to deduction on renovation and repairs of rooms and corridor of hotel building. The learned Tribunal has correctly allowed the deduction following the decision in the case of Guntur Merchants Cotton Press Company Ltd., Vs. CIT reported in 108 ITR 620 (A.P) and as such it does not require any interference. Accordingly, the appeal is dismissed. Miscellaneous petitions, if any pending, shall stand disposed of. No order as to costs. ___________________ K.J. SENGUPTA, CJ _______________ K.C.BHANU, J 20.08.2013 Gsn "