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TMI Blog2003 (11) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... efit of enduring nature is quite irrelevant and in fact superfluous. (iii) the provisions of section 37(1) expressly exclude the allowability of capital expenditure even though wholly and exclusively laid out or expended for the purpose of business. 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law to come to the conclusion that the expenditure on construction of textile institute building was a business expenditure allowable as revenue expenditure when the facts that the assessee got a permanent right to nominate its employee for training in further years was not controverted by the assessee?" The questions suggested that the decision of the Tribunal are founded on its earlier decision for the assessment year 1987-88 in the case of very same assessee and the case of the said assessment year as well as other assessment years have also been made the subject matter of appeal under section 260A before this court. Since detailed reasons of the Tribunal are in the order passed in the appeal arising out of assessment for the assessment year 1987-88 and the said appeal is also before us, we refer to the facts as emerging f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Commissioner of Income-tax (Appeals) affirmed the disallowance. The Tribunal in its common judgment following its earlier decision for the assessment years 1986-87 and 1987-88 and referring to the decision of the Supreme Court in Sassoon J. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261 and of the Bombay High Court in CIT v. Rajaram Bandekar [1994] 208 ITR 503 allowed the expenses as revenue expenses. This controversy is governed by the two questions referred to above. We may notice here that for the assessment year 1986-87, the like question was decided against the Revenue and the application under section 256(1) was made for making reference of number of questions of law said to be arising out of the said order of this court under section 256(1) of the Act. However, the question relating to the aforesaid controversy was not referred to the court. The only question that was referred to this court in proceedings for the assessment year 1986-87 was about guest house expenses and no application under section 256(2) appears to have been made for referring the above question to this court. Accordingly, for the assessment year 1986-87 the allowance under section 37 regarding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olly and exclusively for the purpose of the business of the turf club and was an allowable deduction under section 10(2)(xv) of the Income-tax Act. In Lakshmiji Sugar Mills Co. P. Ltd. v. CIT [1971] 82 ITR 376 the Supreme Court was considering a case in which the appellant coming before the Supreme Court contributed amounts for the construction and development of roads between the various sugarcane producing centres and the sugar factories of the assessee. This expenditure was incurred under a statutory obligation for the development of roads which were originally the property of the Government and remained so eyen after the improvement had been done. The court found in the context of the purpose for which the roads were laid and expenses were incurred by the assessee for such roads that the expenditure was not of a capital nature and had to be allowed as an admissible deduction in computing the profits of the assessee's business. The expenditure was incurred for the purpose of facilitating the running of its motor vehicles and other means employed for transportation of sugarcane to its factories and was therefore incurred for running the business or working it with a view to prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. In CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1996] 219 ITR 521 the Supreme Court was concerned with the question whether the amount spent by the assessee-company for securing construction of tenements for the company's workers through the State Housing Board was a business expenditure of revenue nature which could be allowed as deduction under section 37 of the Income-tax Act, 1961. The assessee-company acquired no ownership rights in the said tenements. The Tribunal held that the expenses incurred for constructing the tenement for its workers through the State Housing Board, in which the assessee did not acquire any property interest, did not result in acquiring any capital asset by the assessee and since it was spent for the welfare of its workers it was a revenue expenditure and allowable under section 37. A reference of this question was declined by the Tribunal. The High Court declined an application under section 256(2) holding that no question of law arose. The Supreme Court referring to its earlier decision in L.H. Sugar Factory and Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293 and another decision in CIT v. T.V. Sundaram Iyengar and Sons P. Ltd. [1990] 186 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilding at a low rent. From the business point of view, therefore, the assessee got the benefit of reduced rent. The High Court had, therefore, rightly considered this as obtaining a business advantage. The expenditure was, therefore, to be treated as revenue expenditure. From the aforesaid judgments of the Supreme Court, it is apparent that merely because the amount spent has been used for construction of a building or structure of permanent nature is not the decisive test for holding the expenses to be capital outlay or revenue outlay. The two tests emerging from the aforesaid decisions are that firstly where the building or construction of any permanent structure is brought into existence that is by itself not sufficient to hold the expenses to be capital nature invariably. Where such construction does not result in acquisition of any capital assets to the trade of the assessee or the property does not become the property of the assessee, it does not result in acquisition of capital assets of enduring nature by the assessee. Secondly, it is also clearly discernible that if such expenses are incurred for the purpose of business for deriving any benefit whether to preserve the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee-company would not have any interest in the buildings to be built on the land and their obligation would be over by contributing their share towards the scheme, it cannot be said that the assessee-company in spending the money expected to acquire or bring into existence any advantage for the enduring benefit of the business but the expenditure was incurred more as a matter of commercial expediency in pursuance of an agreement and the amount in question was a permissible deduction as a revenue expenditure incurred wholly and exclusively for the purpose of the assessee's business and hence, allowable as a deduction. The emphasis was laid that the assessee-company did not itself acquire any capital assets. On appeal, the Supreme Court affirmed the judgment of the High Court in CIT v. T.V. Sundaram Iyengar and Sons P. Ltd. [1990] 186 ITR 276 with further observation that the fact that the scheme is not temporary or for a particular duration made little difference to the expenditure. The answer appears to be so apparent that it was disposed of by a short order which reads as under: "The land has been purchased in the name of the Government and the assessee is not the owner ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acilitating the assessee's trading operations or in enabling the management in the conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. The test of acquisition of capital asset was referable to acquisition of such asset to the trade and not de hors its ownership vesting in the trade of the assessee or in the assessee. In the present case, there is no dispute on the point that the assessee did not acquire any capital asset for his trade or himself. Even the test of acquiring enduring benefit was held to be not applicable where such acquisition does not result in expansion of the profit-making apparatus of the assessee. The case of Empire Jute Co. Ltd. [1980] 124 ITR 1 (SC) was a case in which the assessee by incurring the disputed expenses purchased the loom hours resulting in increased loom hours for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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