[Shreyas Industries Ltd. v. CIT, (2009) 314 ITR 302
(sc)]
The appellant was running a paper mill at Ahmedgarh in
District Sangrur, Punjab. During the previous year relevant to the A.Y.
1996-97, the appellant applied to the Pollution Control Board and the Forest
Department to allow it to discharge its effluent water from its mill to the
Village Tallewal. The Department of Environment and Forests agreed to provide
forest land for an open drain to be constructed by the assessee (user agency)
for carrying its effluent to the Tallewal drain, subject to certain
conditions. One of the conditions was that the appellant will transfer 4.063
hectares of non-forest land in favour of the Forest Department. That was done.
The appellant claimed that an amount of Rs. 70,79,862 incurred by the
appellant on construction of the open drain for disposal of effluents was
revenue expenditure. According to the Department, the expenditure was on
capital account, particularly, when the appellant had debited the building
account to the extent of Rs.70,79,862.
The Commissioner of Income-tax (Appeals) as well as the
Tribunal held that the expenditure incurred was on revenue account. However,
aggrieved by the decision of the Tribunal the matter was carried by the
Department in appeal to the High Court. The High Court reversed the concurrent
finding given by the Commissioner of Income-tax (Appeals) as well as by the
Tribunal.
On appeal the Supreme Court held that the basic question
which the High Court was required to answer was whether the assessee
(appellant) had acquired assets of enduring benefit. For that purpose, the
High Court was required to examine the terms and conditions on which the
Forest Department had permitted the appellant to construct an open drain. The
High Court was required to consider the effect of diversion of forest land. It
was not in dispute that the open drain ran for approximately fourteen
kilometers. It was not in dispute that it cuts through the forest land. It was
not in dispute that in lieu of this diversion, non-forest land came to be
surrendered by the appellant in lieu of the forest land. Further, the
appellant was required to raise plantation on both sides of the open drain.
Under the terms and conditions, it was stipulated that the Forest Department
shall have afforestation on both sides of drain having tree growth with an
amount of Rs.1.62 lakhs to be paid by the user agency (appellant) for raising
and maintenance of plantation. Further, even with regard to the open drain,
the terms and conditions made it very clear that the open drain would be lined
to avoid any seepage/leakage of effluent in due course of time. None of the
terms and conditions imposed by the Forest Department had been examined in the
above circumstances for deciding the question framed hereinabove.
The Supreme Court therefore set aside the order of the High
Court and remitted the matter to the High Court for fresh consideration in
accordance with law.
