THE COMMISSIONER OF INCOME TAX vs. SOUTH INDIA CORPORATION LTD.

The facts indicate that the assessee had a Transport Division at Chennai which showed a sundry expenses of Rs.41,54,531/-. On calling for a break up, it was revealed that Rs.16,26,731/- was -3- captioned as Vaizag Berth consultation. The explanation with respect to such expense was that Government of India had called for tenders for construction, equipping, operation and maintenance of two multi purpose berths on BOT basis for the Vaizag Port. The asssessee had obtained bid documents and engaged a consultant for preparation of the tender and finalisation of the technical and price bids. The Company also submitted the tender incurring an expenditure of Rs.16,26,731/-. However, Ministry of Surface Transport, Government of India, abandoned the project for reason of modifications made to the project itself. The tender was cancelled and hence, the assessee claimed the aforesaid amounts as business expenditure.

The Assessing Officer was of the opinion, after perusal of the various activities -4- undertaken by the assessee, that this was a new line of business, which the assessee had entered into. The mere fact that a consultant was engaged for submission of tender, was also found to be a pointer to the fact of the assessee venturing into a new line of business. Finding that the tender submission for the BOT project was not, in any manner, connected with the other existing businesses of the assessee, the Assessing Officer found that the expenditure can only be capital.

The learned

The learned counsel appearing for the respondent places reliance on the judgment of the Honourable Supreme Court reported in (1989) 177 ITR 377 (SC) [Alembic Chemical Works Co. Ltd. v. Commissioner of Income-Tax] to support the contention that the assessee was engaged in related activities and had merely attempted an expansion of its activities, which resulted in the expenditure. The venture though not new, did not take off since the Government of India abandoned the project. It is also specifically argued that no question of law arises, since the issue of a related business has -6- been dealt with by the Tribunal and held on facts in favour of the assessee.

We see from the order of the Tribunal that it had found that the assessee had been engaged in the activity of construction of building, berths etc. for Chennai Container Private Limited in the Madras Port Trust. The assessee was carrying on the business of clearing and forwarding, handling port services, cargo handling, steamer agents etc. and had also made constructions as herein above stated in the Madras Port Trust. The Tribunal found that the assessee had already entered the line of business of constructions in the Ports and hence, submission of a tender for the Vaizag Port was not in the nature of venturing into a new line of business.

In Alembic Chemical Works Co. Ltd. (supra) a pharmaceutical Company had obtained -7- technical know-how from abroad for increasing yield of penicillin in its existing plant, the know-how being utilised for expansion of the existing business. The Supreme Court found that there cannot be a single criterion determinative as to whether a particular outlay is capital or revenue. It was held; the expenditure being 'once for all' is inconclusive to find it as spend for capital and the test of 'enduring benefit' may break down in many instances. “ What is relevant is the purpose of the outlay and its intended object and effect, considered in a common-sense way having regard to the business realities”(sic-para14).