1980 (9) TMI 45 - HC - Income Tax

Summary

Issues:
1. Whether the expenditure incurred by the assessee towards construction of metal roads on trenching grounds was an item of revenue deduction?
2. Whether the assessee was entitled to depreciation on the cost of construction of metal roads on the trenching grounds?

Analysis:

Issue 1:
The case involved a local body that claimed a deduction of expenditure on constructing metal roads over trenching grounds as revenue expenditure for the assessment year 1972-73. The Income Tax Officer (ITO) disallowed the expenditure, deeming it as capital expenditure for an enduring benefit. The Appellate Authority Commission (AAC) and the Tribunal upheld the ITO's decision, rejecting the claim for depreciation under section 32(1) of the Income Tax Act. The argument presented was that the expenditure was incurred under a statutory obligation for waste removal and was essential for the business operation. However, the court differentiated this case from precedent cases like Lakshmiji Sugar Mills Ltd. and Travancore Cochin Chemicals Ltd., concluding that the expenditure was capital in nature due to the enduring benefit gained by the assessee from the construction of metal roads.

Issue 2:
Regarding the claim for depreciation under section 32(1) of the Income Tax Act, the assessee initially argued that the roads should be considered as "building" but later contended that they should be treated as "plant and machinery." Citing the case of IRC v. Barclay Carle & Co. Ltd., the assessee suggested that roads could qualify as "plant" for depreciation purposes. However, the court distinguished this case, emphasizing that the construction of metal roads for transporting compost did not fall under the category of plant or machinery. Consequently, the court held that the assessee was not entitled to depreciation on the cost of constructing metal roads on the trenching grounds.

In conclusion, the court affirmed that the expenditure on constructing metal roads was capital in nature and not eligible for revenue deduction or depreciation benefits under the Income Tax Act.