9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
1973 (11) TMI 13 - HC - Income TaxCement factory agrees to supply water to a town in consideration of exemption from municipal taxes for fifteen years - Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 2,09,459, or any portion thereof on water supply scheme, incurred by the company was allowable as deduction in determining the profits of the company?
Issues Involved:
1. Whether the expenditure of Rs. 2,09,459 incurred by the company in the accounting period relevant to the assessment period 1959-60 was allowable as a deduction in determining the profits of the company for the assessment year 1959-60. Detailed Analysis: Issue 1: Allowability of Expenditure as Deduction This case involves a reference by the Income-tax Appellate Tribunal under section 66(1) of the Indian Income-tax Act, 1922. The Tribunal posed the question of whether the expenditure of Rs. 2,09,459 incurred by the company, Associated Cement Companies Ltd., during the accounting period relevant to the assessment year 1959-60, was allowable as a deduction in determining the profits for that year. Facts: - The assessee, Associated Cement Companies Ltd., owns multiple cement factories, including one at Shahabad. - In September 1956, the Government of Hyderabad decided to include the area of the Shahabad factory within the municipal limits. - A tripartite agreement dated 30th October 1956 was reached between the assessee-company, the Government of Hyderabad, and the Shahabad Municipality. - Under this agreement, the company agreed to provide water supply, electric transmission lines, and concrete roads to Shahabad town and village. - For the assessment year 1959-60, the expenditure in question pertains to the water supply scheme. Contentions: - The Income-tax Officer disallowed the expenditure, considering it as capital expenditure, arguing that it provided an enduring advantage by exempting the company from municipal taxes for fifteen years. - The Appellate Assistant Commissioner allowed the expenditure as a deduction, viewing it as a composite sum of revenue outgoings for fifteen years. - The Income-tax Appellate Tribunal partially allowed the expenditure, directing the Income-tax Officer to scrutinize and allow deduction to the extent that it did not result in the company becoming the owner of any assets. Arguments: - The revenue argued that the expenditure provided an enduring benefit by exempting the company from municipal taxes, thus constituting capital expenditure. - The assessee contended that the expenditure was necessary to avoid future municipal taxes and regulations, thus should be treated as revenue expenditure. Legal Principles: - Section 10(2)(xv) of the Indian Income-tax Act, 1922, allows deduction of any expenditure laid out wholly and exclusively for the purpose of business, not being capital expenditure. - The Supreme Court in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax and other cases laid down that the aim and object of the expenditure determine its character as capital or revenue expenditure. - The principle from Atherton v. British Insulated and Helsby Cables Ltd. states that expenditure bringing into existence an asset or advantage of enduring benefit is capital expenditure. Judgment: - The Tribunal observed that the expenditure ensured the company could continue its business without municipal restrictions and taxes for fifteen years. - The Tribunal directed that the portion of expenditure not resulting in asset ownership by the company should be allowed as a deduction. - The High Court agreed with the Tribunal, emphasizing that the expenditure was to avoid recurring disadvantages and should be treated as revenue expenditure. - The High Court referenced Commissioner of Income-tax v. Ashok Leyland Ltd., where the Supreme Court held that expenditure to remove recurring disadvantages is not capital expenditure. Conclusion: - The High Court concluded that the expenditure of Rs. 2,09,459 was revenue expenditure and allowable as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. - The question posed by the Tribunal was answered in the affirmative and in favor of the assessee. - The Commissioner was ordered to pay the costs of the reference to the respondent.
|
