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TMI Blog1987 (2) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... " Palmo Godown certain expenses were debited which included expenses on mine surfaces, channel work, mines, underground works and bricks used for these works. For the assessment year 1968-69, according to the Income-tax Officer, the total expenditure, which represented expenses of capital nature came to be Rs. 1,63,735 and similarly for the assessment year 1969-70, according to the Income-tax Officer, the total expenditure came to be Rs. 2,42,216, which represented expenses of a capital nature. The assessee's explanation before the Income-tax Officer was that the Narayan Mica Mines were worked by the firm and these mines could be worked only for a part of the year, as during the rainy season the mining operation had to be discontinued due to the nullah located above the mines overflowing. According to the assessee, during the rainy season, it was not possible to close the mines for fear of cracks taking place which might result in water getting into the mines. To safeguard against the rain water of the nullah going into the mines and for extracting mica throughout the year, the assessee-firm spent substantial amounts in the assessment years in question. The assessee's stand bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the rainy season was not an acquisition of an asset of enduring benefit so as to term it to be a capital expenditure. On the other hand, the Appellate Assistant Commissioner was of the view that the same was built for running the business or working it with a view to producing profits and, in that view of the matter, the Appellate Assistant Commissioner held that the expenditure was of revenue nature and an admissible deduction. The consolidated order of the Appellate Assistant Commissioner has been marked annexure " P " to the statement of the case submitted to this court. Aggrieved by the consolidated order passed by the Appellate Assistant Commissioner, the Department moved separately before the Incometax Appellate Tribunal for the assessment years in question. The Department's stand before the Tribunal was that the expenses were incurred once for all for securing an advantage of enduring nature. According to the Department, the expenses incurred were of special nature and had not been incurred in the earlier year or in the subsequent year. On the other hand, on behalf of the assessee, it was submitted that the expenses were incurred in order to carry on the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract more mica and also resulted in greater safety in the mines. According to the assessee, the concreting of the roof and the sides of the pillars was an extra protection undertaken, as desired by the mining authorities. The assessee's further stand before the Income-tax Officer was that the protection work was a necessary safeguard against percolation as well as overflow of water. The assessee submitted that such work was necessary for the working of the mines as water flowed and endangered the lives of the workers and the mining authorities could not permit carrying on the mining operations if the protection works were not undertaken. As already stated above, the Income-tax Officer took the view that these expenses were capital expenses, whereas, the Appellate Assistant Commissioner and the Tribunal held that the expenses incurred by the assessee were operational expenses and they did not bring into existence any asset or any permanent advantage to the assessee and hence the expenses were revenue in nature and had to be allowed. Occasions have arisen in this court as well as in other High Courts and also in the Supreme Court to deal with the controversy whether an item of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es I at page 14. In City of London Contract Corporation Ltd. v. Styles [1887] 2 Tax Cases 239 at page 243, Bowen L. J., observed as to the capital expenditure as follows: 'You do not use it " for the purpose of " your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern.' 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade: vide Viscount Cave L. C. in Atherton v. British Insulated and Helsby Cables Ltd. [1926] 10 Tax Cases 155. If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. Thus, if labour saving machinery was acquired, the cost of such acquisition cannot be deducted out of the profits by claiming that it relieves the annual labour bill, the business has acquired a new asset, that is, machinery. The expressions 'enduring benefit' o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence, it would be immaterial whether the source of the payment was capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. If it was part of the fixed capital of the business, it would be of the nature of capital expenditure and if it was part of its circulating capital, it would be of the nature of revenue expenditure. These tests are thus mutually exclusive and have to be applied to the facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such construction was to prevent the recurrence of a disaster which had occurred earlier; and (iii) the ultimate object was the protection of the mines as also the safety of the labourers. In the instant case also, the assessee was accorded permission by the Mining Department to extend the workings beneath and within 15 metres of the nullah, though certain conditions were laid down and, thus, (a) there was, admittedly, a new construction; (b) the purpose of the new construction was to prevent overflooding of the mines which had occurred earlier; and (c) the ultimate object was the protection of mines as also the safety of the labourers. Learned counsel for the Revenue also relied upon the case of CIT v. India Tobacco Co. Ltd. [1978] 114 ITR 182 (Cal). In this case, the assessee (India Tobacco Co. Ltd.), having acquired a piece of land, constructed a hospital thereon. At the time the hospital was ready, the Employees' Insurance Scheme came into operation and the Government of Bihar required the hospital in pursuance of this. Some negotiations thereafter took place between the assessee-company, the Government and the workers' union and eventually, a memorandum of settlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have its workers treated at no expense or at concessional expense. The High Court further held that this was an asset or a benefit and as it enured for a considerable length of time or for an indefinite time, it could certainly be considered to be an asset or advantage of enduring benefit, enduring in the sense in which fixed capital in modern times endures. It was further held that by making this one lump sum payment, the assessee-company not only got rid of a liability to make recurring annual payments for the treatment of the workers, who were not covered by the State Insurance Scheme at the hospital, but also obtained this advantage or privilege for an indefinite period. The High Court, ultimately, held that on the facts of the case, the expenditure in question was capital in character not admissible for deduction. (emphasis supplied) In the instant case also, the expenses incurred were once for all securing an advantage of an enduring nature and, in fact, in the assessment years in question, raising of mica increased enormously. Thus, in my opinion, the facts of the case of CIT v. India Tobacco Co. Ltd. [1978] 114 ITR 182 (Cal), are also at par with the facts of the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned counsel for the assessee submitted that the expenditure incurred was basically an expenditure for working the mines in better manner and hence the expenses had to be allowed as revenue expenditure and in support of his submissions, he relied upon a Supreme Court case, CIT v. Ashok Leyland Ltd. [1972] 86 ITR 549. In this case, the assessee-company which was originally importing and assembling motor cars, parts, etc., manufactured by Austin of England, had appointed C.B. Ltd. in 1948 as its managing agents for a period of 14 years. In 1952, the Government of India referred the question of establishing an automobile industry in India to the Tariff Commission; The assessee-company submitted a comprehensive scheme for the manufacture of Leyland trucks and participated in the proceedings before the Commission. The Government instructed the assessee to take up the manufacture of Leyland commercial vehicles and in 1954, the company ceased to manufacture Austin cars in view of the Government's decision. At a meeting held on January 24, 1955, it was suggested by the Minister that the company invite Leylands to provide part of the capital and raise the remaining capital in India and assu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not intended to be an asset of the company but was to be a part of the welfare scheme for the educational facilities to the children of the employees of the assessee and hence the amount in question was revenue expenditure. A mere look at the facts of that case shows that the case is clearly distinguishable and I hold that this case too does not help the assessee in the instant case. Learned counsel for the assessee then relied upon the case of CIT v. Dasaprakash [1978] 114 ITR 210 (Mad). In this case, the claim of the assessee, a firm carrying on the business of running a hotel, for deduction of an expenditure of Rs. 37,390 incurred by it in providing decorated mirrors, plaster-moulded roof, plywood panels, etc., in respect of the hotel premises during the previous year was negatived by the Income-tax Officer in the view that the expenditure could not be said to be in the nature of current repairs to the building as it had brought into existence an asset of an enduring nature and hence it was of capital nature. The disallowance was confirmed by the Appellate Assistant Commissioner. The Tribunal, however, held that the expenditure was incurred wholly for the purpose of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng operations was a revenue expenditure. The facts of the present case are not as were in the case of CIT v. Kirkend Coal Co. [1966] 60 ITR 537 (Pat). (emphasis supplied) In view of the synthesis of judicial principles attempted by the Full Bench of the Lahore High Court in the case of Benarsidas Jagannath [1947] 15 ITR 185, which was duly approved by the Supreme Court in the case of Assam Bengal Cement Co. Ltd. [1955] 27 ITR 34 and also in view of the principles enunciated in the cases, CIT v. North Dhemo Coal Company Ltd. [1977] 106 ITR 592 (Cal), CIT v. India Tobacco Co. Ltd. [1978] 114 ITR 182 (Cal) and Raza Buland Sugar Co. Ltd. v. CIT [1980] 122 ITR 817, I hold that, on the facts and circumstances of the present case, the expenses were incurred once and for all for securing an advantage of an enduring nature and I am of the opinion that the expenses incurred in the instant case were in the nature of capital expenditure and not revenue expenditure and I further hold that, on the facts and circumstances of the present case, the Tribunal was not correct in holding that the amounts of Rs. 1,63,735 and Rs. 2,42,216 incurred by the assessee were expenses of revenue nature and wer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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