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Issues Involved:
1. Whether the expenditure of Rs. 3,19,766 incurred by the assessee in dismantling and shifting the factory was capital expenditure or revenue expenditure within the meaning of section 10(2)(xv) of the Income-tax Act. 2. Whether the assessee was entitled to claim depreciation on the said expenditure of Rs. 3,19,766. 3. Whether the assessee could claim a deduction under section 10(1) of the Income-tax Act. 4. Whether the assessee was entitled to deduct the cost of erection materials to the extent of Rs. 10,906 under section 10(2)(v) of the Income-tax Act. Detailed Analysis: 1. Capital vs. Revenue Expenditure: The assessee, a public limited company engaged in manufacturing sugar, incurred an expenditure of Rs. 3,19,766 for dismantling and shifting its factory from Sitalpur to Garaul. The assessee claimed this expenditure as revenue expenditure under section 10(2)(xv) of the Income-tax Act, arguing that there was no permanent addition to the asset of the business, and hence, it should be treated as revenue expenditure. However, the court held that the expenditure resulted in two enduring advantages: immunity from floods and access to better quality sugarcane. These advantages were deemed sufficient to classify the expenditure as capital expenditure. The court applied the principle from Atherton v. British Insulated and Helsby Cables Ltd., which states that expenditure made with a view to bringing into existence an asset or advantage for the enduring benefit of the trade should be treated as capital expenditure. 2. Claim for Depreciation: The assessee alternatively claimed depreciation on the expenditure under section 10(2)(vi) of the Income-tax Act. The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal rejected this claim, stating that no tangible asset was created. The court agreed, noting that although the assessee gained an enduring advantage, it was an intangible asset, and thus, no depreciation could be allowed under the Income-tax Act or the rules made under that Act. 3. Deduction under Section 10(1): The assessee argued that even if the expenditure was capital in nature, it should be deductible under section 10(1) of the Income-tax Act, citing the Supreme Court cases Badridas Daga v. Commissioner of Income-tax and Calcutta Co. Ltd. v. Commissioner of Income-tax. The court rejected this argument, stating that while the categories of permissible expenditure under section 10(2) are not exhaustive, the expenditure must still be of a revenue nature to be deductible under section 10(1). Since the expenditure was capital in nature, it could not be deducted under section 10(1). 4. Deduction of Erection Materials Cost: The assessee claimed that Rs. 10,906, part of the total expenditure, was the cost of erection materials and should be deductible under section 10(2)(v) of the Income-tax Act. The court rejected this claim, noting that it was not raised before the Income-tax Appellate Tribunal or in the application under section 66(1) of the Income-tax Act. Therefore, it was not open for debate at this stage. Conclusion: The court answered both questions of law referred by the Income-tax Appellate Tribunal against the assessee and in favor of the Income-tax Department. The expenditure of Rs. 3,19,766 was classified as capital expenditure, and no depreciation was allowed. The court also rejected the claim for deduction under section 10(1) and the late claim regarding the cost of erection materials. The Income-tax Department was entitled to costs of the reference, with a hearing fee of Rs. 250.
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