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TMI Blog1961 (1) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... ractors. While submitting the return for the accounting year 1952-53, the assessee claimed deduction of this amount under section 10(2)(xv) of the Income-tax Act and showed a net profit of ₹ 10,000 in regard to this business. The proper Income-tax Officer disallowed this claim when computing the profits under this contract on the ground that this payment was in the nature of capital expenditure . The appeal carried by the assessee to the Appellate Assistant Commissioner was successful. The view of the Appellate Assistant Commissioner was that the expenditure incurred by the assessee in this behalf was of a revenue nature since no enduring benefit could be said to have accrued on account of this payment. Aggrieved by this decision, the Department preferred an appeal to the Income-tax Appellate Tribunal. The Tribunal came to the conclusion that the lay-out was for the purpose of securing a source of revenue from which certain income was derived subsequently by its exploitation and not for carrying on the business of supply of gulmohwa flower. In other words, the Tribunal felt that it was not a revenue deduction but was capital expenditure. However, the Tribunal, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce an asset or an advantage for the enduring benefit of a trade, I think that 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. (p. 213) In Tata Hydro-Electric Agencies Ltd. v. Commissioner of Income-tax [1937] 5 ITR 202 (PC) the Judicial Committee stated that if the expenditure was part of the working expenses in ordinary commercial trading, it was not capital but revenue. Their Lordships remarked: What is 'money wholly and exclusively laid out for the purposes of the trade' is a question which must be determined upon the principles of ordinary commercial trading. It is necessary, accordingly, to attend to the true nature of the expenditure, and to ask oneself the question, Is it a part of the company's working expenses; is it expendture laid out as part of the process of profit earning? An example of the last of the tests is found in Mohanlal Hargovind v. Commissioner of Income-tax [1949] 17 ITR 473 (PC) rendered by the Privy Council. There, the assessees carried on business at several places as manufacturers and ven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck. This was not accepted by the Revenue and also by Harman J., who heard the appeal. Dealing with the facts of the case, Lord Evershed M.R. stated that what was purchased was a part of the land itself, namely, the gravel in situ and that there was distinction between the purchase of a growing crop or leaves and the purchase of gravel. He then remarked: I think that once it has to be conceded that there was no sale of the gravel in the way the judge said there was, then it must follow that what the company acquired was... 'the means of getting the gravel by excavating and making it part of the stock-in-trade'. He also stated that if the taking of sand and gravel involved merely taking them up and putting them into trucks, the finding could have been otherwise. These dicta found acceptance in Pingle Industries Ltd. v. Commissioner of Income-tax [1960] 40 ITR 67 (SC). However, on the facts of that case, their Lordships reached the conclusion that the outlay was of a capital nature and the assessee could not, therefore, invoke section 10(2)(xv) of the Indian Income-tax Act. In that case, the assessee company, which carried on inter alia the business of selling Shaha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet but no interest in the land was conveyed to him. As soon as the earth was removed, his right was at an end. The duration of the lease was from six months to three years. In those circumstances, it was held that the main object of the agreement being the securing of earth as raw materials and the lessee not having acquired any advantage of a permanent or enduring character, the expenditure was not on capital account. In Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax [1953] 27 ITR 34 (SC) , after referring to the case cited above, Bhagwati J. remarked: In cases where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital expenditure. The question however arises for consideration where expenditure is incurred while the business is going on and is not incurred either for extension of the business or for the substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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