1990 (1) TMI 50 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 4,12,105 incurred on the construction of quarters for workers is of capital nature.
2. Whether the assessee is entitled to depreciation on roads.

Summary:

Issue 1: Nature of Expenditure on Workers' Quarters

The primary issue was whether the expenditure of Rs. 4,12,105 incurred by the assessee for constructing workers' quarters should be classified as capital expenditure or revenue expenditure. The assessing authority initially disallowed the deduction, treating it as capital expenditure but allowed depreciation on it. The Commissioner of Income-tax (Appeals) accepted the assessee's claim, following the decision in CIT v. Singareni Collieries Co. Ltd. [1980] 121 ITR 466. The Appellate Tribunal upheld this decision, stating that the expenditure was for employee welfare and did not result in the acquisition of any capital assets by the assessee.

The court examined the agreement under which the quarters were constructed, noting that the ownership of the houses vested in the Central Government and the assessee only bore 26% of the cost. The agreement was for a period of 15 years, and the expenditure was deemed to be a welfare measure rather than an acquisition of a proprietary interest. The court referenced several precedents, including CIT v. Associated Cement Companies Ltd. [1988] 172 ITR 257 (SC), which emphasized that expenditure facilitating business operations without altering the capital structure is revenue in nature.

The court concluded that the expenditure incurred by the assessee was a contribution towards a welfare scheme and not for acquiring an enduring benefit. Thus, the expenditure was classified as revenue expenditure, and the deduction claimed by the assessee was allowed.

Issue 2: Depreciation on Roads

The second issue regarding the entitlement to depreciation on roads was not pursued by the Revenue before the court.

Conclusion:

The court answered the first question in the affirmative, holding that the expenditure on workers' quarters was not of capital nature and should be allowed as a revenue expenditure. The reference was answered accordingly, in favor of the assessee and against the Revenue.