9911796707
TMI Blog1982 (12) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the agreement entered into with the concerned authority the assessee was allowed to use the land at the site on the following condition which was condition No. 5: " Use of land for construction purposes. Such land as may be available will be allowed to be used by the contractor for construction of their camps free of charge. The contractor will be responsible to clear the site after completion of their work in this contract and hand over the land to this department. The contractor will be liable to pay compensation for any damages done to the land. " In order to fix the mixers and plant/machinery at the site, the assessee had to prepare a foundation on the land. For this purpose the assessee incurred a total expenditure of Rs. 11,90,706 during the financial years 1960-61 to 1962-63, and labelled it as " erection charges ". This expenditure was capitalised in the books separately and was written off over the years on the basis of work done in each year. Accordingly, the assessee claimed deduction in the manner following : Assessment years Claimed Rs. 1962-63 25,080 1963-64 3,88,967 1964-65 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of the Act and is contrary to the conventions of accountancy, is not correct. The installation charges are part and parcel of the cost of the fixed assets and shall be considered for the purpose of allowing depreciation. Writing off is not allowed." There was an appeal before the AAC. The AAC rejected the assessee's claim with the following observations : " The cost of plant and machinery normally includes installation charges and such charges cannot be considered as separate from the cost of machinery and plant. Even in normal accountancy practice and under the Income-tax Act also, the depreciation is allowed on the price of the machine and the expenses incurred on its installation. Obviously installation charges are undoubtedly of capital nature and thus cannot be allowed as revenue expenditure. The appellant's case cannot be compared with the case of circus party which has to travel from place to place with short intervals whereas the appellant's business is not of casual shifting nature but it has to be shifted after a number of years when a contract is completed. The two decisions cited by the learned counsel are of no help to the appellant inasmuch as both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e does not incur such expenses every time it moves from one site to another as most of the plant/machinery could be used without fixing them on the ground. It is only where the work undertaken is of integrated and a special type that the assessee is obliged to fix the plant/machinery for a temporary period. Looking to the nature of the business and its being carried on at different places by the assessee, we are of the view that the expenditure on fixing the plant/machinery for a temporary period, was wholly and exclusively laid out for the purpose of the carrying on of the business and is also of revenue nature. Accordingly, we direct the income-tax authorities to accept the assessee's claim. We do not think that the fact that the assessee had claimed development rebate on the cost of the assets inclusive of erection charges, would make any difference in deciding the issue about the deductibility of Rs. 6,26,016 and Rs. 1,50,640 which, of course, could be withdrawn if the department so chooses. " In those circumstances, the assessee (revenue ?) sought to raise two questions before this court which are as follows: " 1. Whether, on the facts and in the circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for us, in our opinion, to discuss in detail the decision, to which our attention was drawn, of the judicial Committee in the case of CIT v. Basant Rai Takhat Singh [1933] 1 ITR 197 (PC), or the observation of this court in the case of Hindustan Aluminium Corpn. Ltd. v. CIT [1983] 144 ITR 474, on this aspect of the matter though this decision was relied on for some other aspect, to which we will refer later on, if necessary. It was contended that the expenditure created a source of earning revenue to the assessee. Reliance was placed on several authorities. Our attention was drawn to the observations of the Queen's Bench Division of the High Court of England by Mr. Justice Charles in the case of Smith (Surveyor of Taxes) v. Westinghouse Brake Company [1888] 2 TC 357 (QB). There the erection charges were disallowed by Mr. Justice Charles. Our attention was also drawn to certain observations of the Court of Sessions, Scotland, in the case of The Law Shipping Co. Ltd. v. IRC [1923] 12 TC 621 (C Sess) and reliance was placed on the observations of Lord Sands at page, 628-629. Learned advocate for the Revenue also relied on the decision of the Supreme Court in the case of Sitalpur Sug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the facts and circumstances of the case and by the application of the principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure was so related to the carrying on or conduct of the business that it might be regarded as an integral part of the profit-earning process and not for acquisition of an asset or for a right of permanent character, the possession of which was a condition for the carrying on of the business, the expenditure in those circumstances could be regarded as revenue expenditure. (See the observations of the Supreme Court in the case of Bombay Steam Navigation Co. (1953) Pvt. Ltd. v. CIT [1965] 56 ITR 52, at pages 5960). Therefore, in view of the fact that in this case the expenditure was necessary for carrying out better or more efficiently earning of profit by the assessee concerned, in our opinion, these were incidental to the earning of the profit and that was the immediate purpose and object of incurring the expenditure ; if there was an incidental addition of some permanent nature enuring to the assessee, that in our opinion, is of no consequence in determining whet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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