M/S. KERALA STATE BEVARAGES (M AND M) vs. THE ASSISTANT COMMISSIONER OF INCOME TAX

ITA/11/2015HC KeralaKLHC01025412201524 September 2018Author: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON10 pages
AI SummaryAllowed

What were the facts?

The assessee, Kerala State Beverages (M&M) Corporation Ltd., a wholesale liquor trader with a monopoly in Kerala, is in appeal against an order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench, for assessment year 2010-2011. The Assessing Officer (AO) disallowed expenses incurred by the assessee for laboratory equipment to test liquor samples, deeming it capital expenditure and not in the assessee's name. The appellate authority upheld this. The ITAT, referencing a Delhi High Court decision, also held the expenses were not for business or goodwill. The assessee argued the expenditure was mandated by a Government Order for laboratory infrastructure, benefiting their business by ensuring quality liquor, but the equipment belonged to the Government, thus it was revenue expenditure.

What did the High Court hold?

The High Court held that the expenditure incurred by the assessee for installing laboratory equipment in a Government Laboratory, as directed by a Government Order, was revenue in nature. While the equipment aided the assessee's business by facilitating the testing of liquor samples, the assessee had no ownership over the equipment, thus it was not a capital investment. The Court reasoned that the assessee would likely have to pay examination fees for testing samples, similar to other agencies. The findings of the AO, appellate authority, and Tribunal disallowing the claim were not upheld. The Court distinguished the Supreme Court decisions relied upon by the revenue, noting that in L.H.Sugar Factory, the assessee did not acquire any tangible or intangible right, and the expenditure improved day-to-day running by minimizing operational costs. In the present case, the expenditure was for providing facilities to an independent government agency without acquisition by the assessee. Therefore, it was considered revenue expenditure. The questions of law were answered in favour of the assessee, and the appeal was allowed.

What were the issues?

1. Whether the expenditure incurred by the appellant for purchasing laboratory equipment, as per Government Order No.1740/2008/home dated 31.05.2008, is revenue in nature, under Section 37 of the Income Tax Act, 1961? (Mixed law and fact) 2. Whether the Tribunal ought to have allowed the appeal? (Mixed law and fact) Assessee's contentions: The expenditure was mandated by a Government Order for essential laboratory equipment to test liquor samples, including contraband. The equipment was installed in a Government Laboratory and belonged to the Government, not the assessee. Therefore, it could not be capital expenditure. The expenditure facilitated the business of selling safe and quality liquor, making it revenue expenditure. The assessee is entitled to claim deduction under Section 37. Revenue's contentions: The learned Senior Counsel for the Revenue relied on Supreme Court decisions in Arvind Mills Ltd. v. Commissioner of Income Tax, Gujarat, and L.H.Sugar Factory and Oil Mills (P) Ltd. v. Commissioner of Income Tax, to argue that expenses for betterment of business, even if not creating a capital asset, could be capital expenditure if they provide an advantage of a long duration, facilitating more efficient and profitable business operations.

Which sections of the Income-tax Act were involved?

Section 37

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 24TH DAY OF SEPTEMBER 2018 / 2ND ASWINA, 1940 ITA.No. 11 of 2015 AGAINST THE ORDER/JUDGMENT IN ITA 66/COCH/2014 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28.8.2014 APPELLANT/S:/APPELLANT/ASSESSEE M/S. KERALA STATE BEVARAGES (M & M) CORPORATION LTD., P.B.2263, SASTHAKRIPA OFFICE COMPLEX, SASTHAMANGALAM, THIRUVANANTHAPURAM- 695010, PAN-AAACK9431G. BY ADVS. SRI.ANIL D. NAIR KUM.SOUMYA PRAKASH SMT.C.S.SULEKHA BEEVI SMT.ROSIE ATHULYA JOSEPH SRI.R.SREEJITH RESPONDENT/S:/RESPONDENT-REVENUE THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1), TRIVANDRUM-695001. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 24.09.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA 11/15 -2- J U D G M E N T Ashok Menon, J. The assessee is in appeal against the order dated 28.8.2014 of the Income Tax Appellate Tribunal, Cochin Bench arising out of ITA No.66/COCH/2014 for the assessment year 2010-2011. The following substantial questions of law arise for consideration: “

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 37

All 4,202 judgments and leading authorities on Section 37 →

Recent GST High Court judgments

Search GST case law →