High Court · 2007

IN THE HIGH COURT OF JUDICATURE AT MADRASDated : 28.11.2007Coram :-THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMANTax Case (Appeal) Nos.1485 and 1486 of 2007The Commissioner of Income TaxChennai. Appellant in both cases/ Respondent in both casesv.Tamilnadu Industrial Development Corporation Ltd.,19-A Rukmini Lakshmipathy RoadEgmore, Chennai 8.. Respondent in both cases/Appellant in both casesTax Case Appeal filed under Section 260A of the Income TaxAct against the order of the Income Tax Appellate Tribunal Madras'B' Bench dated 04.09.2006 made in I.T.A.Nos.1413/Mds/2000 & 937(Mds)/2003 for the assessment years 1994-95 and 1999-2000against the order of the Commissioner of Income Tax (A) VI,Chennai dated 3.2.2000 made in ITA 165/97-98/SR VIII and dated18.2.2003 made in ITA Tr. No.127/2002-03 and as against theDeputy Commissioner of Income Tax Spl Range III Chennai orderdated 12.3.1997 in PAN/GIR No.4-T/SR VIII and order dated26.3.2002 made in G. I. No. 4 T for the assessment year 1994-1995and 1999-2000 respectively.For Appellant : Mr.J.Nareshkumar, Jr.Standing Counsel for IT Dept. https://hcservices.ecourts.gov.in/hcservices/ JUDGMENT(Judgment of the Court was deliveredby K.RAVIRAJA PANDIAN, J.)The Revenue has filed these tax case appeals against theorder of the Income Tax Appellate Tribunal, Madras 'B' Benchdated 04.09.2006 made in I.T.A.Nos.1413/Mds/2000 & 937(Mds)/2003.The relevant assessment years are 1994-95 and 1999-2000. 2. The assessee is Tamilnadu Industrial InvestmentCorporation Ltd., and the main object of the assessee is topromote industrial development in the State through partnershipwith private enterprises, either as Joint sector or as associatesector or as escort sector. During the course of its businessfor the assessment year 1994-95 the assessee claimed to writeoff a sum of Rs.8,98,706/- being the pre project expenses inrespect of 13 projects. Those projects were being promoted by theassessee in joint venture. The assessing officer found that theprojects were yet to come up and there was no situation towarrant that the projects have been shelved. He disallowed theclaim as prematured. For the assessment year 1999-2000, theassessee made a similar claim in a sum of Rs.18,31,054/-, whichwas allowed by the assessing officer. 3. The assessee filed appeals in respect of both theassessment years although the order for the year 1999-2000 inrespect of the pre project expenses was favourable to theassessee, before the Commissioner of Income Tax (Appeals). TheCommissioner of Income Tax (Appeals) confirmed the order of theassessing officer in respect of the pre project expenses for theassessment year 1994-95. In respect of the assessment year 1999-2000 though the Commissioner of Income Tax (Appeals) considered asum of Rs.29,52,391/- being expenditure on unsuccessful projectwritten off, which was the subject matter of appeal, ultimatelyconcluded that the working of the business loss arrived at by theassessing officer made it clear that he had not made adisallowance of the sum of Rs.29,52,391/- as has been representedby the assessee and thus concluded that the issue did notsurvive. 4. Against the orders of the Commissioner of Income TaxAppeals, the assessee and the revenue filed second appeals beforethe Income Tax Appellate Tribunal. The Tribunal held in favourof the assessee by following the decision of this Court in thecase of CIT V. SESHASAYEE BROTHERS P.LTD (127 ITR 218). Thecorrectness of the said order is now canvassed in the presenttax case appeals by formulating the following substantialquestion of law : https://hcservices.ecourts.gov.in/hcservices/ Whether on the facts and circumstances of thecase, the Tribunal was right in holding that the writeoff of pre-project expenses was correct in law, whenthere is a clear factual finding that the projects hadnot been shelved as not viable and that the write offwas premature?5. Learned counsel appearing for the revenue submitted thatthis Court in somewhat similar set of facts in the case ofE.I.D. PARRY (INDIA) LTD., VS. CIT (257 ITR 253) observed thatwhen the assessee incurred the expenditure for the purpose ofsetting up a new project, it was clearly in the capital field andnot in the revenue field. The abandonment of that project wasthe abandonment of a project on which capital expenditure hadbeen incurred. The expenditure incurred on that capital projectwas not something which could be regarded as revenue expenditurelaid out exclusively and wholly for the purposes of business ofthe assessee as what the assessee was trying to start was a newbusiness for the manufacture of a new product. The expenditureincurred therein was clearly capital expenditure and not revenueexpenditure. Relying on the said decision the counsel appearingfor the revenue sought to argue that the order of the Tribunal iserroneous in nature and requires consideration from this Court.6. We heard the arguments of the counsel appearing for therevenue and perused the materials available on record.7. We are not able to concur with the argument of thecounsel for the revenue. The assessee, in the above citeddecision, was a company which has expended the amounts for thepurpose of putting up a new industrial unit. Here, in this case,the assessee is not an industry and it is a State IndustrialDevelopment Corporation Ltd., with the object of financingprivate parties for the purpose of promotion of industrialdevelopment either as joint sector or as associate sector or asescort sector. It financed the private parties for the purposeof putting up industries. That makes a total difference betweenthe case with which reliance has been made by the learned counselfor the revenue. However, the Tribunal placed reliance on thedecision of this Court in the case of CIT v. SESHASAYEE BROTHERSP. LTD. (127 ITR 218), wherein the assessee, a managing agencycompany had been investigating several projects and whereverfeasible, promoting new industrial undertakings. If the newundertakings materialised the expenses were transferred andrecovered from the new unit and the assessee secured the officeof managing agents of technical consultancy or the like andearned profits. If, however, the project was unsuccessful, theassessee company wrote off the expenses. In its assessment for1966-67 and 1967-68 the assessee claimed deduction of the sum of https://hcservices.ecourts.gov.in/hcservices/ Rs.9,865/- and Rs.10,785/- respectively which were projectexpenses incurred by it in a newsprint paper mill project whichdid not materialise. The Tribunal held that as the assessee'sbusiness was promotion of new ventures, the project expenditurewas incidental to the business and hence could not be treated aspreliminary or capital in nature and accordingly, allowed thesame. The revenue carried the matter on appeal before thisCourt. This Court, after analysing the various judgments,ultimately held that the expenses incurred by the assessee werein the course of the business as promoters of companies or asmanaging agents and with a view to augmenting their income andconsequently held that the Tribunal was right in its conclusionthat the sums in question were allowable as revenue expenditure. 8. The case on hand would be squarely covered by the ratiolaid down by the Division Bench of this Court in the case of CITv. SESHASAYEE BROTHERS P. LTD. (127 ITR 218). Hence, we do notfind any question of law for entertainment of the appeals. Theappeal are dismissed. No costs. The connected miscellaneouspetition is dismissed.krr/mfSd/Asst.Registrar/true copy/Sub Asst.RegistrarTo1. The Assistant Registrar, Income Tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Madras 90.2. The Income Tax Appellant Tribunal, Madras 'B' Bench, Chennai.3. The Commissioner of Income Tax (A) VI, Chennai.4. The Deputy Commissioner of Income Tax, Special Range VIII, Chennai 34.+ 1 cc to Mr. Pushya Sitaraman Advocate SR No. 70570ASM(CO)SR/21.1.2008T.C.(As.)Nos.1485 & 1486/2007