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TMI Blog1980 (3) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... he same and has been set out in the following terms by the Tribunal: " Whether, on the facts and in the circumstances of the case, the disallowance of the expenditures incurred of Rs. 24,000, Rs. 37,000 and Rs. 24,000, respectively, in the assessment years 1964-65, 1965-66 and 1966-67, by way of contribution to intensive cane development scheme, as capital expenditure, was justified in law ? " The facts relating to the above matter may be briefly stated. The assessee is a private limited company, carrying on, as its name indicates, the business of manufacture of sugar. In the year 1962, the Govt. of U.P. appointed a high power advisory committee to make recommendations for the improvement of the cultivation of sugarcane. In pursuance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct Cane Officer in respect of overall charge of the scheme and the carrying out of the programme of development was left to be manned by the cane development council. It is to this council that the assessee had contributed Rs. 24,000, Rs. 37,000, and Rs. 24,000, respectively, in the three years in question for the purpose of the above scheme. The expenditure incurred by the assessee was claimed as a deduction for income-tax purposes. This claim was rejected by the ITO, who observed that the amounts could not be regarded as having been exclusively laid down for earning the income or as necessitated by business requirements and disallowed the same. However, on appeal, the AAC took different view. In his opinion the expenditure had been incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. CIT [1971] 82 ITR 376, and the decision of the Allahabad High Court in the case of Mahabir Sugar Mills (P.) Ltd. v. CIT [1973] 89 ITR 143. In the case before the Supreme Court, the assessee, a sugar factory, had paid to the cane development council certain amounts by way of contribution and this was held allowable as a deduction in computing the profits of the assessee's business. But in that case the contribution had been made to enable the development council to construct and develop roads between various sugarcane producing centres and the sugar factories of the assessee. The expenditure had been incurred under a statutory obligation. The roads remained the property of the Government before and after the improvement. The roads w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the contributions made by the assessee were deductible as business expenditure. It was pointed out that the mere fact that the scheme had been formulated by the Government did not lead to the inference that in making the payment, the assessee did something which was not expected to benefit its business. It was also held that the fact that the supply of sugarcane would be made by the canegrowers not to the assessee alone but also to certain other factories, could not form a basis for rejecting the claim. It was also held that it was not necessary for the assessee to show that the mills would be closed down in case the development was not undertaken. In coming to its conclusion, the High Court relied on the decision of the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecticides cannot constitute capital expenditure in any sense of the term. The only doubtful items are in regard to the expenditure envisaged on the boring of wells and construction of godowns and by way of subsidy on culverts, but, as in the case before the Supreme Court, there is nothing in the present case also to show that the expenditure resulted in the creation of any capital asset for the assessee. The wells and culverts had to be constructed on the lands belonging to the canegrowers and there is no material to show that these became the property of the assessee. The assessee has only contributed funds for the implementation of a general scheme in which there were four participants. The scheme itself, as it is seen from the judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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