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TMI Blog2003 (9) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... sation of forest resources. The company has coffee plantation, tea plantation, rubber plantation, cardamom plantation and cash crop division. The company runs two saw mills in the name of Namphai Saw Mill at Namphai and Banderdewa Saw Mill and Plywood Industries at Banderdewa in Arunachal Pradesh. For the assessment year 1987-88, the company claimed debit from the profit and loss of company the expenditure of Rs. 25,73,082 as generation expenses and Rs. 4,50,939 as maintenance of plantation and an amount of Rs. 1,30,688 which have been spent by the company towards research and development of the plants, amongst other claims made by the company. These two items are the subject matter of dispute before us in the present appeal. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emoved from the forest for utilisation of the company. The question is when expenses are incurred for regeneration and plantation by the company, whether it would be a capital expenditure or it would be a revenue expenditure. The test for distinguishing between capital expenditure and revenue expenditure in our country was laid down by the apex court in the case of Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34. In that case the company had acquired limestone quarries for a period of 20 years for the purpose of manufacture of cement from the Government of Assam on lease. The lessee agreed to pay protection fee for the entire lease period and in consideration thereof the State agreed not to grant to any person any lease, permit or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence 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" Whether by spending the money any advantage of an enduring nature has been obtained or not will depend upon the facts of each case. Moreover, as the above case itself provides, this test would not apply if there are special circumstances pointing to the contrary. In the case of CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1996] 219 ITR 521 (SC), the company contributed to the State Housing Board certain amounts for construction of tenements for its workers. The t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edge that the plants planted would not be grown within ten years for utilisation as forest product. Thus, whatever plant regeneration is done by the company the fruits of it will not be available to the company during the lease period. The expenses incurred by the company for regeneration of the plants is not in the nature of capital gains and thus the Tribunal as well as the appellate authority have rightly granted deduction to the company under these heads. It is submitted by learned counsel for the Revenue that research and development expenses have turned into acquisition of knowledge by the assessee and thus the assessee derives enduring benefit out of such research work which can be utilised by the company for its benefit for time t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r applied and used in all conditions in all surroundings and in all areas of the forest. The nature of the business carried out by the assessee, the research findings would be normally for maintaining ecological balance and maintaining the forest and to some extent for the growth of the plants, new or old. When the expenses are incurred for research work towards these directions it cannot be said to be a creation of an advantage of enduring nature or creation of the capital asset, which is being used in all surroundings. Besides this, the expenses incurred in the research work may not necessarily result in positive findings or even negative findings to be utilised by the assessee as knowledge in the nature of permanent asset. The research w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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