1967 (9) TMI 13 - HC - Income Tax

Assessee, a motor car manufacturing company paid contribution to Govt. for repairing approach road to factory - held that contribution paid was business expenditure and was allowable

Issues Involved:
1. Whether the sum of Rs. 39,770 contributed by the assessee for the improvement of the approach road is a capital expenditure or a revenue expenditure.
2. Whether the expenditure is allowable as a business expense under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Detailed Analysis:

1. Capital Expenditure vs. Revenue Expenditure:

The primary issue was to determine whether the expenditure of Rs. 39,770 for the improvement of the approach road should be classified as capital expenditure or revenue expenditure. The Income-tax Officer and the Appellate Assistant Commissioner initially treated the expenditure as capital expenditure and disallowed the deduction. However, the Appellate Tribunal allowed the appeal, stating:

> "The assessee, as we have stated above, was not the owner of the road and the improvement which was being made was being done by the Government. The assessee of course contributed towards the costs and expenses for the improvement of the road but the enduring benefit, if at all, went to the owner of the road and not to the assessee."

The Tribunal concluded that since no capital asset was built up by the expenditure, it could not be called a capital expenditure. The Tribunal further stated:

> "The purpose must be the purpose of the assessee's own business and the expenditure must have been incurred for that purpose."

The High Court analyzed the distinction between capital and revenue expenditure, citing the Supreme Court's statement in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax:

> "If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure."

The High Court distinguished the present case from the Scottish case of A. G. Moore & Co. v. Hare (Surveyor of Taxes), stating that the latter involved creating new capital assets, while in the present case, the road did not belong to the assessee but to the Government.

2. Allowable Business Expense under Section 10(2)(xv):

The second issue was whether the expenditure was allowable as a business expense under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Tribunal held that:

> "A sum of money expended even if not by necessity but voluntarily, but if the same facilitated the carrying on of the assessee's business, it was surely an expenditure wholly and exclusively incurred for the purpose of the business."

The High Court agreed, noting that the expenditure was incurred to facilitate the transportation of cars manufactured by the assessee and was not for any benevolent purpose. The Court emphasized:

> "The money was spent not so much to bring about any asset or advantage of enduring benefit to itself but to run the business efficiently and conveniently."

The Court also noted that the expenditure was justified as a business prudence to induce the Government to repair the road, which was necessary for the efficient running of the assessee's business.

The High Court concluded:

> "The expenditure ought thus to be treated as wholly and exclusively spent for the assessee's business within the meaning of section 10(2)(xv)."

Conclusion:

The High Court answered the question referred to it in the affirmative and in favor of the assessee, stating that the sum of Rs. 39,770 was an allowable expense within the meaning of section 10(2)(xv) of the Indian Income-tax Act, 1922. The Commissioner of Income-tax was ordered to pay the costs of the reference to the assessee.

K. L. Roy J. concurred with the judgment.

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