C I T UDAIPUR vs. M/S HINDUSTAN ZINC LTD UDAIPUR

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ITA/7/2004HC RajasthanRJHC01015625200309 January 2023Author: SANDEEP MEHTA,REKHA BORANA2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. The Court noted that the Revenue had candidly admitted that the issue was no longer res integra and had been decided against the Revenue by a Division Bench of the same Court in the case of Commissioner of Income-tax vs. Hindustan Zinc Ltd. ([2009] 221 CTR 631 (Rajasthan)). The Special Leave Petition filed by the Department against that judgment was also dismissed. The Division Bench in the cited case had held that the expenditure incurred by the assessee for commercial expediency, relating to carrying on of business, falls within the category of expenditure a prudent businessman may incur. Specifically, regarding the water pipeline from Gosunda Dam, the Court found that the assessee's expenditure was to ensure sharing of water for its super smelter plant, which was essential for its operation. The Court concluded that operational expenses solely intended for the furtherance of the enterprise cannot be treated as capital expenditure. Therefore, the present appeal was dismissed in view of the ratio laid down in the previously decided case.

What were the facts?

This Indian Income Tax Appellate Tribunal (ITAT) judgment concerns an appeal filed by the Commissioner of Income Tax, Udaipur (the Revenue) against M/s Hindustan Zinc Ltd., Yashad Bhawan, Udaipur (the Assessee). The appeal challenges the ITAT's order upholding the Commissioner of Income Tax (Appeals) [CIT(A)] decision. The assessment year(s) are not explicitly stated. The dispute revolves around whether expenditure incurred on a new project, specifically exploring lead at Dhukanda mines and laying a new water pipeline from Gosunda Dam, constitutes revenue expenditure or capital expenditure. The Revenue contended that such expenditure on a new project cannot be revenue expenditure even if it's in the same line of business and that it produced enduring benefits. The Assessee's expenditure was for commercial expediency to ensure water supply for its super smelter plant.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the Hon’ble ITAT has grossly erred in law in upholding the order of the CIT(A) by ignoring the legal position that expenditure incurred on a new project cannot be considered as revenue expenditure on expansion even though the assessee is in the same line of business? (Question of law) 2. Whether on the facts and in the circumstances of the case, the Hon’ble ITAT has grossly erred in law in upholding the order of the CIT(A) by ignoring the fact that expenditure incurred on exploring lead at Dhukanda mines and on laying new water pipeline from Gosunda Dam has undoubtedly brought in/produced enduring benefit to the assessee? (Question of mixed law and fact) Revenue's contentions: - Expenditure on a new project cannot be treated as revenue expenditure on expansion, even if in the same line of business. - Expenditure incurred on exploring lead at Dhukanda mines and laying a new water pipeline from Gosunda Dam has produced enduring benefits for the assessee. Assessee's contentions: - The expenditure was incurred for commercial expediency to carry on the business and falls within the scope of expenditure a prudent businessman would incur. - The expenditure on the water pipeline was essential for the operation of the super smelter plant and thus operational in nature. The judgment notes that the Revenue candidly admitted the issue was no longer res integra and had been decided against the Revenue by a Division Bench of the same High Court.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR D.B. Income Tax Appeal No. 7/2004 Commissioner of Income Tax, Udaipur ----Appellant Versus M/s Hindustan Zinc Ltd., Yashad Bhawan, Udaipur ----Respondent For Appellant(s) : Mr. K.K. Bissa For Respondent(s) : Mr. Anjay Kothari HON'BLE MR. JUSTICE SANDEEP MEHTA HON'BLE MS. JUSTICE REKHA BORANA

Order 09/01/2023 The present income tax appeal was admitted on 12.02.2004 while framing the following substantial questions of law:

“1. “Whether on the facts and in the circumstances of the case, the Hon’ble ITAT has grossly erred in law in upholding the order of the CIT(A) ignoring: (i) the legal position that expenditure incurred on a new project can not be considered as revenue expenditure on expansion even through the assessee is in the same line of business; and (ii) the fact that expenditure incurred on exploring lead at Dhukanda mines and on laying new water pipe line from Gosunda Dam, has undoubtedly brought in/produced enduring benefit to assessee?” Learned counsel for the revenue candidly admitted that the issue is no more res integra and has been decided against the Revenue by the Division Bench of this Court in the case of Commissioner of Income-tax vs. Hindustan Zinc Ltd. reported in [2009] 221 CTR 631 (Rajasthan) decided on 30.01.2009 and the special leave petition being Special Leave to Appeal (Civil) No.28563/2009 preferred by the Department

(2 of 2) [ITA-7/2004] against the said judgment has also been dismissed vide order dated 18.07.2011. In the case of Hindustan Zinc Ltd. (supra), the Division Bench held as under: “Adverting to the facts of the present case, admittedly, the assessee’s super smelter plant requires adequate quantity of water for its operation and unless and until, water is available, the super smelter plant would not function and would not be able to produce any items. Admittedly, the Ghosunda Dam has been constructed by the State Government and the assessee has made expenditure for its alteration so as to ensure sharing of the water with the State Government without having any right or ownership in the dam or the water. Even, the assessee’s share of water is also determined by the State Government. Thus, the expenditure incurred by the assessee for commercial expediency relates with carrying on of business and falls within such matter expenditure as prudent businessman may incur for the purpose of the business. The operational expenses incurred by the assessee solely intended for furtherance of the enterprise can be no means be treated as expenditure of capital nature.” In view of the ratio as laid down in the case of Hindustan Zinc Ltd. (supra), the present appeal stands dismissed. (REKHA BORANA),J (SANDEEP MEHTA),J 85-T.Singh/-

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