PRINCIPAL COMMISSIONER OF INCOME TAX 2 vs. GUJARAT CO.OP. MILK MARKETING FEDERATION LTD.

Facts

The Revenue has filed this Tax Appeal under Section 260A of the Income Tax Act, 1961, challenging an order passed by the Income Tax Appellate Tribunal (ITAT) dated August 2, 2018, for the assessment year 2011-12. The appeal concerns the deletion of disallowances made by the Assessing Officer concerning expenses incurred towards a fertility improvement program, and also traveling, conveyance, lodging, and boarding expenditures. The Revenue contends these expenses were capital in nature. The Gujarat High Court notes that the issues raised are no longer res integra due to a previous decision of the same court in a similar appeal involving the same assessee. That previous decision was subsequently upheld by the Supreme Court when the Revenue's SLP was dismissed.

Held

The High Court held that the substantial questions of law raised in the appeal were no longer res integra, referring to its own prior decision in Principal Commissioner of Income Tax 2, Vadodara vs. Gujarat Cop. Op. Milk Marketing Fedaration Ltd. [Tax Appeal No.1266 of 2018], decided on October 22, 2018. In that prior decision, the Court noted that while the lower authorities had not thoroughly examined the capital vs. revenue nature of the expenditure, the activities undertaken under the fertility improvement program by the assessee (GCMMF) were general in nature and aimed at improving practices for better fertility among milk animals by addressing issues causing infertility. These activities included village awareness camps, animal registration, fertility camps, mass deworming, mineral mixture distribution, mass vaccination, and providing balanced cattle feed. The Court concluded that these expenditures were for the purpose of its business and not co-relatable to any tangible returns. The High Court further noted that the SLP filed by the Revenue against its earlier judgment was dismissed by the Supreme Court on April 26, 2019. Consequently, the present appeal was dismissed.

Key Issues

1. Whether, on the facts and circumstances, the ITAT erred in law and fact by deleting the disallowance of Rs. 515.61 Lacs incurred towards the fertility improvement program? (Question of law and fact, concerning the nature of expenditure). 2. Whether, on the facts and circumstances, the ITAT erred in law and fact by holding the expenditure of Rs. 515.61 Lacs towards the fertility improvement program as revenue expenditure, instead of capital expenditure, given its enduring benefit? (Question of law and fact, concerning the nature of expenditure). 3. Whether, on the facts and circumstances, the ITAT erred in law and fact by deleting the Traveling and Conveyance Expenditure, treating it as revenue instead of capital? (Question of law and fact, concerning the nature of expenditure). 4. Whether, on the facts and circumstances, the ITAT erred in law and fact by deleting the lodging and boarding expenditure, treating it as revenue instead of capital? (Question of law and fact, concerning the nature of expenditure). Assessee's Contentions: The judgment does not record specific contentions made by the assessee before the High Court. However, the ITAT, in its order which is under challenge, had deleted the disallowances. The High Court's previous decision, cited as precedent, indicates that the fertility improvement program expenditures were general in nature, aimed at improving practices for better fertility among milk animals, and were for the purpose of business, not yielding tangible returns. The nature of traveling, conveyance, lodging, and boarding expenses is not detailed in the provided text. Revenue's Contentions: The Revenue argued that the fertility improvement program expenditure was of an enduring nature, hence capital in nature and not allowable as revenue expenditure. It also argued that traveling, conveyance, lodging, and boarding expenditures were capital in nature, not revenue.