1971 (3) TMI 15 - HC - Income Tax

Sugar factory - Whether, on the facts and in the circumstances of the case, the sum of Rs. 15,300 spent on the construction of kachcha roads and one temporary culvert was revenue expenditure admissible under section 10(2)(xv) of the Act

Summary

Issues:
1. Whether the sum spent on the construction of kachcha roads and a temporary culvert is revenue expenditure admissible under section 10(2)(xv) of the Indian Income-tax Act, 1922?

Detailed Analysis:
The case involved a private limited company engaged in sugar manufacturing, which claimed a deduction of Rs. 15,300 for the construction of approach roads and a culvert during the assessment year 1959-60. Initially, the Income-tax Officer disallowed the deduction citing non-verifiability and capital nature of the expenditure. The Appellate Assistant Commissioner upheld this decision. However, the Income-tax Appellate Tribunal allowed the appeal, stating that the expenditure was verifiable and of a revenue nature. The Commissioner of Income-tax contended that the Tribunal did not explicitly find the expenditure as verifiable, but the Court inferred from the Tribunal's analysis that it indeed was. The Tribunal based its decision on the supporting receipts provided by contractors and the nature of the expenditure, ultimately concluding that the expenditure was verifiable.

The next issue addressed was whether the expenditure was of a capital or revenue nature. The assessee argued that the expenditure was for repairing kachcha roads and constructing temporary link roads to facilitate the transportation of sugarcane during different seasons. The Tribunal accepted the assessee's argument, noting that the expenditure did not create any enduring asset or advantage. The Tribunal found merit in the contention that the temporary roads, constructed on public lands not owned by the assessee, became unusable after each season due to weather conditions. Consequently, the Court held that the expenditure was of a revenue nature as it did not result in the creation of a lasting asset. The Court dismissed the Commissioner's argument that there was insufficient evidence to support the facts presented by the assessee, clarifying that the issue was not part of the referred question.

In conclusion, the Court answered the referred question in the affirmative, favoring the assessee and ruling against the Commissioner of Income-tax. The Court awarded costs to the assessee and assessed the counsel's fee at Rs. 200.