LARSON and TOUBRO LTD. vs. C.I.T.-III, BOMBAY.

ASN 1 ITR-67(final).doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX REFERENCE NO.67 OF 1989 Larsen & Toubro Ltd. L & T House, N.M.Marg, Ballard Estate, Bombay-38. ...Applicant. Vs. The Commissioner of Income Tax, Bombay City III, Bombay. ...Respondent. Mr. J. D. Mistry, Sr. Advocate along with Mr. B. D. Damodar Advocate i/by Kanga & Co. for the Applicant. Mr. Vimal Gupta Advocate for the Respondent. CORAM : S.J.VAZIFDAR & M.S. SANKLECHA, JJ.

DATE : 15th June, 2012 JUDGMENT (Per M. S. Sanklecha J.) This is a reference under Section 256(1) of the Income Tax Act, 1961 at the instance of the Applicant for the Assessment Year 1979-80. 2 The following question has been referred by the Income Tax Appellate Tribunal arising out of its Order CNR No : HCBM020010761989 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:37

ASN 2 ITR-67(final).doc dated 17.2.1988 for the opinion of this Court: Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the professional fees aggregating to Rs.3,44,630/- paid to the consultants in relation to the applicant’s cement project was in the nature of capital expenditure? 3 The brief facts relating to the case is that during the Assessment Year 1979-80 the Applicant incurred expenses on professional fees of Rs.3,44,630/- in relation to its cement project at Chandrapur. The Applicant claimed the above expenses as a revenue expenditure on the ground that the cement project is not a new business but an extension of its existing business. The Applicant was during the Assessment Year 1979-80 inter alia engaged in the business of manufacturing cement manufacturing machinery. Subsequently the applicant proposed setting up plant for manufacturing cement and for that purpose had incurred the aforesaid expenditure in relation to professional fees. The Applicant claimed that the aforesaid expenditure of payment to consultants ought to be allowed as a revenue expenditure as the same was not in respect of a new business but an Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:37

ASN 3 ITR-67(final).doc extension of an existing business and there was complete inter-connection, inter-lacing and inter-dependence between the existing business and the cement manufacturing project. The Income Tax Officer rejected the claim of the Applicant holding that the expenditure is of a capital nature. The CIT (Appeals) and the Income Tax Appellate Tribunal upheld the order of the Income Tax Officer. 4 The Advocate for the Applicant as well as the Respondent are agreed that issue in the present application is covered against the applicant by the decisions of this Court in the matter of C.I.T. Vs. J.K. Chemicals Ltd. 207 ITR 985 and Trade Wings Limited Vs. C.I.T. 185 ITR 267. In the above cases it has been held that where the expenditure is incurred for the project /feasibility report in connection with exploring the feasibility of a new business venture different from the existing line of business then such expenditure is capital expenditure and not revenue expenditure. Therefore the expenditure incurred for the purposes of setting up a new business venture which would entail acquiring assets of enduring nature was in the nature of capital expenditure. 5 However, it is urged by Mr Mistry that the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:37

ASN 4 ITR-67(final).doc decision of this court in the matters of J.K. Chemicals Ltd. reported in 207 ITR 985 and Trade Wings Limited reported in 185 ITR 267 may not be correct. He contended that in circumstances similar to the present, the Courts have taken a view that where there is a complete inter- connection, inter-lacing and inter-dependence between the existing business and the new business then the expenditure incurred for the new project is considered to be an expenditure for the purpose of business and allowed as Revenue expenditure. In support of his above contention, he relied inter alia upon the following decisions:

(i) Produce Exchange Corporation Ltd. reported in 77 ITR 739 (S.C.) (dealing with carry forward of business losses); (ii) Standard Refinery and Distillery Ltd. reported in 79 ITR Page 589 (S.C.) (dealing with carry forward losses); (iii) Hindustan Aluminium Corporation Ltd. Vs. Commissioner of Income Tax reported in 159 ITR 673 (Calcutta); (iv) Kerala State Industrial Development Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:37

ASN 5 ITR-67(final).doc Corporation Ltd. reported in 182 ITR 62 (Kerala); (v) Seshasayee Bros. Pvt. Ltd. reported in 127 ITR 218 (Madras); (vi) Assam Asbestos Ltd. Reported in 263 ITR 357(Gauhati). 6. We have not considered the aforesaid decisions and other decisions relied upon by Mr. Mistry as we are bound by the decisions of this Court in the matter of J.K. Chemicals and Trade Wings Ltd. Mr. Mistry has not shown us any decision of this Court taking a contrary view. 7. We therefore, answer the above question in the affirmative i.e. in favour of the Revenue and against the Assessee/Applicant. 8. The Reference is accordingly disposed of. No order as to costs. (M. S. SANKLECHA, J. ) (S. J. VAZIFDAR, J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:37 Powered by TCPDF (www.tcpdf.org)