1970 (8) TMI 10 - HC - Income Tax

Assessee obtaining a lease of land for making bricks - expenditure on chimney in the brick-kiln - chimney for a brick-kiln has a long life - hence cost of the chimney is a capital expenditure

Summary

Issues:
1. Deduction of lease amount as revenue expenditure.
2. Classification of chimney cost as capital expenditure.

The judgment pertains to a reference under section 66 of the Indian Income-tax Act, 1922, involving an assessee, a firm engaged in brick manufacturing and other businesses. The primary issues revolve around the deductibility of certain expenditures as revenue or capital. The first issue concerns the deduction of Rs. 13,205, comprising lease acquisition costs and incidental charges, as revenue expenditure. The second issue involves determining whether the expenditure of Rs. 1,729 for erecting a chimney in the brick-kiln qualifies as capital expenditure. The court examined various precedents to ascertain the nature of the expenses in question.

Regarding the first issue, the court analyzed past judgments to differentiate between capital and revenue expenditure. It referenced cases like Gotan Lime Syndicate and Singareni Collieries Co. Ltd. to establish that not all enduring benefits result in capital expenditure. The court highlighted the distinction between acquiring an enduring asset and incurring ongoing operational costs. The case of Benarsidas Jagannath was cited to support the deductibility of expenses related to land leases for brick manufacturing under specific provisions of the Income-tax Act.

In addressing the second issue concerning the chimney cost, the court emphasized the enduring nature of the asset and its integral role in the manufacturing process. Drawing parallels with Atherton v. British Insulated and Helsby Cables Ltd., the court reiterated that expenditures aimed at creating enduring assets generally constitute capital expenditure. The judgment in M. A. Jabbar v. Commissioner of Income-tax further illustrated that acquiring rights for a limited period does not amount to capital expenditure, unlike in the present case where the chimney served as a lasting benefit for the business.

Ultimately, the court ruled against the assessee on both issues. It determined that the lease acquisition costs and chimney expenditure qualified as capital expenditure due to the enduring benefits they conferred on the business. The judgment underscored the importance of considering the nature and longevity of assets or benefits derived from expenditures in distinguishing between revenue and capital outlays. The assessee was directed to pay costs to the Commissioner of Income-tax, U. P., concluding the legal proceedings in this matter.