1949 (10) TMI 1 - HC - Income Tax

Summary

Issues Involved:
1. Nature of the payment made by the assessee to Tehri-Garhwal State.
2. Whether the payment is deductible under Section 10(2)(xii) of the Indian Income-tax Act, 1922.
3. Interpretation of capital expenditure versus revenue expenditure.

Issue-wise Detailed Analysis:

1. Nature of the Payment:
The primary issue was whether the sum of Rs. 5,000 paid by the assessee to Tehri-Garhwal State for the use of the Munikireti-Dhaulsut-Deoprayag-Kirtinagar Motor Road was capital or revenue expenditure. The assessee, a registered firm running motor vehicles on hire, had an agreement with the Tehri Durbar granting monopoly rights to ply motor vehicles on this road for five years. The agreement stipulated an annual payment of Rs. 20,000 as nazrana, with a proportionate reduction if the road was impassable for more than sixty days in any year. For the financial year 1942-43, the assessee paid only Rs. 5,000 due to the road being unusable for several months.

2. Deductibility under Section 10(2)(xii):
The assessee sought to deduct this Rs. 5,000 payment from its income under Section 10(2)(xii) of the Indian Income-tax Act, 1922, which allows for the deduction of any expenditure "not being in the nature of capital expenditure or personal expenses of the assessee" laid out wholly and exclusively for the purposes of the business. The Income-tax Officer, Appellate Assistant Commissioner, and Tribunal concluded that the payment was capital expenditure, as it was for acquiring monopoly rights and not merely for the use of the road.

3. Capital vs. Revenue Expenditure:
The court examined various tests and precedents to determine whether the expenditure was capital or revenue. The key considerations included:
- Capital expenditure is typically non-recurring and results in an enduring benefit for the trade, as noted in British Insulated and Helsby Cables, Ltd. v. Atherton.
- Revenue expenditure is recurring and directly related to the income generation process.
- The Tribunal's interpretation that the payment was for monopoly rights rather than road usage was scrutinized. The court found that the agreement's terms did not support the view that the payment was a lump sum for monopoly rights but rather an annual payment subject to deductions based on road conditions.

The court referenced several cases, including Ogden v. Medway Cinemas, Ltd., Messrs. Mohanlal Hargovind v. Commissioner of Income-tax, and others, to illustrate the distinction between capital and revenue expenditure. It was noted that payments for raw materials or recurring business expenses are typically revenue expenditures.

Conclusion:
The court concluded that the Rs. 5,000 payment was a revenue expenditure, as it was a recurring annual payment essential for the assessee's business operations. The payment was not made once and for all but was necessary to generate the income intended to be taxed. Therefore, the sum of Rs. 5,000 was deductible from the income under Section 10(2)(xii) of the Indian Income-tax Act, 1922.

Costs:
The assessee was awarded the costs of the proceedings, assessed at Rs. 500.

Separate Judgment:
SETH, J. concurred with the judgment.

Reference Answered Accordingly.