The Commissioner Of Income Tax vs Kochi Refineries Ltd on 10 November, 2009

       

  

  

 
 
  IN THE HIGH COURT OF KERALA AT ERNAKULAM

ITA.No. 210 of 2009()


1. THE COMMISSIONER OF INCOME TAX,
                      ...  Petitioner

                        Vs



1. KOCHI REFINERIES LTD.,
                       ...       Respondent

                For Petitioner  :SRI.JOSE JOSEPH, SC, FOR INCOME TAX

                For Respondent  : No Appearance

The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice V.K.MOHANAN

 Dated :10/11/2009

 O R D E R
                    C.N.RAMACHANDRAN NAIR &
                               V.K.MOHANAN, JJ.
               ....................................................................
            I.T. Appeal Nos.210,275,816,918 & 963 of 2009
               ....................................................................
              Dated this the 10th day of November, 2009.

                                      JUDGMENT

Ramachandran Nair, J.

Heard Standing Counsel appearing for the appellant. The

respondent is a Government of India undertaking engaged in petroleum

refining at Kochi. In fact, the respondent-company has later merged

with another Public Sector Oil Company namely, BPCL. Appeals arise

from the orders of the Tribunal for the assessment years 1994-95 to

1998-99. The Supreme Court has held that in order to file appeal

against a Public Sector Oil Company under the control of the Central

Government, department has to obtain approval from a Committee of

Government Secretaries constituted under the judgment of the Supreme

Court in ONGC & ANOTHER V. COLLECTOR OF CENTRAL

EXCISE reported in JT 1991(4) SC 158. Standing Counsel submitted

that since the assessment files are shifted, he has no information about

the clearance, if any granted. However, we have heard the case on

merits.

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2. The first question raised is whether the Tribunal was justified

in holding that the expenditure incurred for conducting feasibility

studies for improvement in the efficiency of the operations of the

company is revenue expenditure eligible for deduction under Section

37(1) of the Income Tax Act. Standing Counsel submitted that the

feasibility study involved substantial amount and the result would be

adoption of new technology and methods for improved efficiency in

the running of the company. Therefore, according to him, the

expenditure is capital in nature as an enduring benefit is derived by the

respondent-company. However, on going through the Tribunal’s order,

we find that the Tribunal noticed that no new plant or device is

established by the company as a result of the feasibility study and so

much so, no enduring benefit is achieved by the company. Since the

decision of the Tribunal is based on finding on facts, we reject the

question raised in the appeal as one of of substantial question of law.

3. The next question raised is also similar in nature and the

expenditure involved is the amount spent and accounted as project

overheads. The Tribunal has gone through the details of the amount

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spent and it was found that it is in the nature of salary paid to the

employees, traveling allowance, printing, stationery etc. Here again,

the department has no dispute that the amount is not actually spent by

the assessee. On the other hand, limited dispute raised is whether the

expenditure is capital or revenue in nature. On detailed examination,

the Tribunal noticed that the expenditure is revenue in nature and so

much so, they allowed the claim. Here again, we do not find any

substantial question of law arising from the orders of the Tribunal.

4. The last question is with regard to the deduction allowed by

the Tribunal under Section 80I of the Income Tax Act in respect of the

investment in 20 MW Captive Power Plant. The reason for

disallowance is that the Captive Power Plant is part of the industrial

unit of the company and it does not constitute a separate industrial

undertaking. We are unable to accept the contention of the department

because the company is engaged in refining petroleum and if power

plant is established, it is certainly a different industrial unit, no matter

the power is generated by using the existing industrial facility. It is the

finding of the Tribunal that besides utilising the power generated by the

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Captive Power Plant for the purpose of industry itself, the balance is

sold by the company to K.S.E.B. We are in complete agreement with

the finding of the Tribunal that the 20 MW Captive Power Plant is a

separate industrial unit eligible for deduction under Section 80I of the

Act. We do not find any substantial question of law arising from the

finding of the Tribunal that the Captive Power Plant is a separate

industrial unit. Consequently we dismiss all the appeals filed by the

Revenue.

Registry will forward a copy of this judgment to the respondent.

C.N.RAMACHANDRAN NAIR
Judge

V.K.MOHANAN
Judge
pms