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TMI Blog1980 (8) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... construction of the Deoni Dam and the Deoni Dam-Majhala Road and pursuant to this request of the Collector, the assessee contributed a sum of Rs. 22,332 during the accounting year ending 30th September, 1955. The assessee also contributed a sum of Rs. 50,000 to the State of Uttar Pradesh during the same accounting year towards meeting the cost of construction of roads in the area around its factory under a sugarcane development scheme promoted by, the Uttar Pradesh Government as part of the Second Five Year Plan. It was provided under the sugarcane development scheme that one-third of the cost of construction of roads would be met by the Central Govern merit, one-third by the State Government and the remaining one-third by Sugar factories and sugarcane growers and it was under this scheme that the sum of Rs. 50,000 was contributed by the assessee. In the course of its assessment to income-tax for the assessment year 1956-57, the assessee claimed to deduct these two amounts of Rs. 22,332 and Rs. 50,000 as deductible expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Income-tax Officer disallowed the claim for deduction to the ground that the expenditure incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the business activity of the assessee as such, the Tribunal was justified in concluding that it was not wholly and exclusively laid out for the business and that the deduction claimed by the assessee, therefore, did not come within the ambit of section 10(2)(xv) ". (pp. 583 584 of 84 ITR) The High Court, accordingly, answered the question referred to it in favour of the revenue and against the assessee. The assessee thereupon preferred the present appeal in this court after obtaining the necessary certificate from the High Court. Now, an expenditure incurred by an assessee can qualify for deduction under s. 10(2)(xv) only if it is incurred wholly and exclusively for the purpose of his business, but even if it fulfils this requirement, it is not enough; it must further be of revenue as distinct from capital nature. Two questions, therefore, arise for consideration in the present appeal : one is whether the sums of Rs. 22,332 and Rs. 50,000 contributed by the assessee represented expenditure incurred wholly and exclusively for the purpose of the business of the assessee and the other is whether this expenditure was in the nature of capital or revenue expenditure. So far as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusion was indeed not seriously disputed on behalf of the revenue but the principal contention urged on its behalf was that the expenditure of the amount of Rs. 50,000 incurred by the assessee was in the nature of capital expenditure, since it was incurred for the purpose of bringing into existence an advantage for the enduring benefit of the assessee's business. The argument of the revenue was that the newly constructed roads, though not belonging to the assessee, brought to the assessee an enduring advantage for the benefit of its business and the expenditure incurred by it was, therefore, in the nature of capital expenditure. The revenue relied on the celebrated test laid down by Lord Cave L.C. in British Insulated and Helsby Cables Ltd. v. Atherton [1925] 10 TC 155 (HL) at p. 192, where the learned law Lord stated: " When an expenditure is made, not only once and for all, but with view to bringing into existence an asset or an advantage for the enduring benefit of a trade, ....... there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment, one-third by the State Government and only the remaining one-third was to be divided between the sugarcane factories and sugarcane growers, These roads were undoubtedly advantageous to the business of the assessee as they facilitated the transport of sugarcane to the factory and the outflow of manufactured sugar from the factory to the market centres. There can be no doubt that the construction of these roads facilitated the business operations of the assessee and enabled the management and conduct of the assessee's business to be carried on more efficiently and profitably. It is no doubt true that the advantage secured for the business of the assessee was of a long duration in as much as it would last so long as the roads continued to be in motorable condition, but it was not an advantage in the capital field, because no tangible or intangible asset was acquired by the assessee nor was there any addition to or expansion of the profit-making apparatus of the assessee. The amount of Rs. 50,000 was contributed by the assessee for the purpose of facilitating the conduct of the business of the assessee and making it more efficient and profitable and it was clearly an expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the benefit of its business which was of manufacturing sugar in which the main raw material admittedly consisted of sugarcane. These facts would bring it within the second part of the principle mentioned before, namely, that the expenditure was incurred for running the business or working it with a view to produce the profits without the assessee getting any advantage of an enduring benefit to itself ". (Emphasis supplied). These observations are directly applicable in the present case and we must hold on the analogy of this decision that the amount of Rs. 50,000 was contributed by the assessee " for running the business or working it with a view to produce the profits without the assessee getting any advantage of an enduring benefit to itself ". This decision fully supports the view that the expenditure of the amount of Rs. 50,000 incurred by the assessee was on revenue account. We must also refer to the decision of this court in Travancore-Cochin Chemicals Ltd. v. CIT [1977] 106 ITR 900 (SC), on which strong reliance was placed on behalf of the revenue. The facts of this case are undoubtedly to some extent comparable with the facts of the present case. But ultimately in c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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