9911796707
TMI Blog1988 (5) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, the Associated Cement Companies Ltd. is the respondent. The judgment against which the appeal is directed was rendered on a reference under Section 66(1) of the Indian Income-tax Act, 1922. The question referred to the Court for consideration was as follows: Whether on the facts and in the circumstances of the case, the expenditure of ₹ 2,09,459, or any portion thereof, incurred by the company in the accounting period relevant to the assessment period 1959-60 was allowable as deduction in determining the profits of the company for the assessment year 1959-60. The relevant facts are as follows: The assessee, the Associated Cement Companies Ltd. has a chain of factories manufacturing cement all over the count ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company was to be the owner of the pipelines, installations and other accessories pertaining to the water supply lying within the company's premises and on the land a little outside the premises. The Shahabad Municipal Committee was to take over possession of the remaining pipelines, installations and accessories and it was declared to be the owner thereof. These pipelines, installations, etc. had to be maintained by the Minicipal Committee in future. Under Clause 23, in consideration of the assessee company having agreed to provide these amenities, supply and services, the Govt. of Hyderabad undertook not to include any of the properties of the company comprising the cement factory, the main workshop, the housing colony, quarries a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wnership of the Shahabad Town Municipality and did not pertain to any increase of the assets of the company. The Division Bench which decided the reference has pointed out that it had not been disputed by the Revenue before the Tribunal that the entire expenditure concerned was laid out for the purpose of business and the only question was whether it was capital expenditure or revenue expenditure. The only ground on which the claim of the assessee for deduction of the said expenditure under Section 10(2) (xv) of the Indian Income-tax Act was resisted that it was capital expenditure. After exhaustively considering several decisions of the Supreme Court and several English decisions, the Division Bench of the Bombay High Court came to the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against revenue, the lump sum payment should equally be regarded as a business expenses, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. The Division Bench also took into account the fact that the assessee was already running a cement factory at Shahabad and it was not as if the expenditure incurred was in connection with starting of a new business. Mr. Manchanda, learned counsel for the appellant has raised only two contentions before us. The first contention was that, since, as a result of the expenditure incurred, certain water pipelines were laid which could be regarded as capital assets the expenditure could only be regarded as capital expenditure. In our view, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principles laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more effectively or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee by making the expenditure in question was the securing of absolution or immunity from liability to pay municipal rates and taxes under normal conditions for a period of fifteen years. If these liabilities had to be paid, the payments would have been on revenue account and hence the advantage secured was in the field of revenue and not capital. As a result of the expenditure incurred, there was no addition to the capital assets of the assessee company and no change in its capital structure. The pipelines, etc. which might have been regarded as capital assets and which came into existence as a result of the expenditure incurred did not belong to the assessee company but to the municipality. In these circumstances, applying th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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