1969 (11) TMI 18 - HC - Income Tax

Payment made to the Govt. towards road development fund - must be treated as capital expenditure - not allowable for deduction

Summary

Issues:
1. Whether the payment of Rs. 25,000 towards road development fund by the assessee was capital or revenue expenditure.
2. Whether the sum of Rs. 40,419 received by the assessee from the Government for early start of crushing of sugarcane was taxable income.

Analysis:

Issue 1:
The first issue pertains to the nature of the payment of Rs. 25,000 made by the assessee towards road development fund. The court examined previous cases to determine if the expenditure should be treated as capital or revenue. In cases like Commissioner of Income-tax v. Hindustan Motors Ltd. and Commissioner of Income-tax v. S. B. Ranjit Singh, it was established that expenditure for improving roads could be considered revenue expenditure if it was for current repairs. However, in a similar case of Dewan Sugar and General Mills (P.) Ltd. v. Commissioner of Income-tax, it was held that expenditure for constructing new roads constituted capital expenditure. In the present case, the court concluded that the conversion of kachcha roads into pucca roads by the assessee was not akin to current repairs but resulted in a lasting benefit, thus qualifying as capital expenditure. Therefore, the court upheld the Tribunal's decision of disallowing the deduction for the Rs. 25,000 expenditure.

Issue 2:
Regarding the second issue of whether the sum of Rs. 40,419 received by the assessee from the Government constituted taxable income, the court analyzed the nature of the receipt. The court referred to cases like Senairam Doongarmall v. Commissioner of Income-tax and Godrej & Co. v. Commissioner of Income-tax to distinguish between capital and revenue receipts. It was noted that the payment received by the assessee was not compensation for permanent injury but an incentive for early crushing of sugarcane. The court highlighted that the receipt was closely linked to the business activities of the assessee and did not fall under the category of casual and non-recurring income as per the Income-tax Act. Consequently, the court agreed with the Tribunal's decision that the sum of Rs. 40,419 was taxable income for the assessee.

In conclusion, the court answered both questions in the affirmative, ruling against the assessee and directing them to pay costs to the Commissioner of Income-tax.