1977 (3) TMI 8 - HC - Income Tax

Summary

Issues Involved:
1. Whether the expenditure incurred by the assessee for constructing miners' quarters is revenue expenditure or capital expenditure.

Judgment Summary:

Issue 1: Nature of Expenditure (Revenue vs. Capital)
- The assessee, Singareni Collieries Company Ltd., constructed 1,424 miners' quarters during the assessment years 1964-65 and 1965-66, incurring expenditures of Rs. 1,06,333 and Rs. 2,55,103 respectively, beyond the amounts reimbursed by the Coal Mines Labour Housing Board.
- The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) disallowed the claim, categorizing the expenditure as capital in nature. However, the Income-tax Appellate Tribunal found the expenditure to be revenue in nature.
- The High Court examined various precedents and principles to determine the nature of the expenditure. It was noted that neither "capital expenditure" nor "revenue expenditure" is defined in the I.T. Act, 1961, and the distinction must be drawn based on the facts and circumstances of each case.
- The court referred to several cases, including Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC), which emphasized that capital expenditure typically results in an enduring benefit for the business. However, the court also noted that "enduring benefit" does not necessarily mean a permanent benefit.
- The court distinguished the present case from others by noting that the quarters constructed were not owned by the assessee but vested in the Board, and the assessee merely paid a nominal rent for their use. The expenditure was incurred primarily for the welfare of the employees, not for creating a lasting benefit for the business.
- The court concluded that the expenditure was incurred as a measure of business expediency and not for acquiring an enduring benefit. Therefore, it should be classified as revenue expenditure.

Conclusion:
- The High Court held that the assessee is entitled to deduct the sums of Rs. 1,06,333 and Rs. 2,55,103 as revenue expenditure for the assessment years 1964-65 and 1965-66, respectively. The reference was answered in favor of the assessee, and the revenue was directed to pay the costs of the reference. Advocate's fee was set at Rs. 250.