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TMI Blog1979 (11) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1962-63, the question referred is : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 17,771 is capital expenditure ? " It may be mentioned here that the sum of Rs. 17,771 referred to in the question for assessment year 1962-63 is of the same nature as the expenditure of Rs. 23,600 which is referred to in the second question for the assessment year 1961-62. Thus, one of the two questions is common for both the years. It will be convenient to dispose of both the references by a common judgment. Taking up first, the first question referred in I.T.R. No. 48/70, the relevant facts are very brief. The assessee is a public limited company engaged in the business of printing and publishing, inter alia, a daily newspaper in English and a daily newspaper in Hindi. Shri Durgadas was the editor of the English paper, Hindustan Times. On his retirement, the company presented him with a car costing Rs. 14,260. This was debited by the company to the miscellaneous expenditure account under the head " Gifts, etc., to employees ". The ITO disallowed the expenditure without any discussion. The AAC upheld it saying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 19th century laissez faire doctrine which regarded man as an economic being concerned only to protect and advance his self-interest but in the context of current socio-economic thinking, which places the general interest of the community above the personal interest of the individual and believes that a business or undertaking is the product of the combined efforts of the employer and the employees and where there is sufficiently large profit, after providing for the salary or remuneration of the employer and the employees and other prior charges such as interest on capital, depreciation, reserves, etc., a part of it should in all fairness go to the employees." Learned counsel also drew our attention to the observations of Desai J. in CIT v. Laxmi Cement Distributors Pvt. Ltd. [1976] 104 ITR 711 (Guj), at page 717 : " The payment of family pension or gratuity to the dependants of a deceased employee, however, is now a recognised concept in the field of employment and it has received statutory recognition. It cannot any longer be treated as a bounty or a philanthropic gesture actuated by compassionate objective. Even if such payment is not provided for by any scheme or con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um of Rs. 3,000 which had been paid in lieu of gratuity to the widow of late Dev Dass Gandhi, managing editor of the Hindustan Times. The ITO had disallowed the expenditure. But, in appeal, the AAC, following an earlier order of the Tribunal in connection with the assessment year 1959-60, had allowed the amount as a revenue expense. On these facts, Mr. Vaish contends that the assessee had established the existence of a past practice and that even otherwise the payment was clearly one made with a view to indirectly facilitate the carrying on of the business of the assessee. There is a good deal of force in the broad submissions made by the learned counsel. But we find that our hands are tied down in this case by the lack of any material whatsoever on the basis of which these contentions could be accepted. As already pointed out, in the assessee's accounts, in the assessment order as well as in the order of the AAC the payment has been treated only as a gift made to Durgadas. Even at the stage of the appeal before the Tribunal no facts were placed on behalf of the assessee to support the contention that this was not a payment made as a gift on personal grounds to Durgadas but that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the reasonableness of an amount of commission based on turnover which was paid to an employee by way of remuneration and the court was only pointing out that under modern conditions this was a normal and prudent way of remuneration of an employee by a businessman who has interest in the prosperity of his business. Again, in Sassoon J. David and Co. P. Ltd.'s case [1979] 118 ITR 261 (SC), the question really was whether the motive behind the payment of certain compensation was for the purposes of the business of the assessee or had a relation to the taking over of the management of the company in question by a different set of shareholders. It was found as a fact that as a result of the expenditure in question the appellant-company had benefited by a reduction in the wage bill and that the amount was expended on grounds of commercial expediency in order to indirectly facilitate the carrying on of the business. One of the items paid in that case was an annual payment of Rs. 16,885 to one of the directors of the company for a period of 3 years and the court observed : " It is too late in the day now, whatever may have been the position about two decades ago, to treat the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct current by the New Delhi Municipal Committee for its business premises. It was found that the voltage of the direct current was quite often low with the result that the machines could not work satisfactorily and give maximum output. The company applied to the New Delhi Municipal Committee for changing the supply to alternating current from direct current. The New Delhi Municipal Committee informed the company that for this purpose new cables would have to be laid at an expenditure of Rs. 23,600 and that this expenditure was to be borne by the company although under the Electricity Rules the cables themselves would be the property of the New Delhi Municipal Committee. The company, accordingly, agreed to this condition and the direct current was replaced by alternating current. It has to be clarified in this connection that the expenditure incurred by the company, in this regard, was divided into two parts. One part represented the cost of laying the electric cables from the mains up to the business premises of the company. It is in respect of this that a sum of Rs. 23,600 has been claimed as an expenditure. The company also incurred further expenditure within the company's p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n before us arises. We have come to the conclusion that the view taken by the Tribunal is erroneous. It is important to remember that this is not a case where the assessee is obtaining supply of electricity for the first time. Its business has been in existence for quite some time and it was also obtaining electricity though the supply was of direct current. The expenditure presently in question has been incurred only to change the nature of the supply of electricity from direct current to alternating current. Granting that this change was undertaken or accepted by the assessee because there were some difficulties in making the machines work satisfactorily with direct current, we do not think that it would be correct to describe the expenditure as having been laid out either to acquire any asset or to acquire any advantage of enduring nature. By the expenditure in question the assessee did not certainly acquire any asset, because it is common ground that the cables which were laid did not belong to the assessee but continued to belong to the New Delhi Municipal Committee. Shri Verma, however, contends that as a result of the expenditure the company had acquired an advantage of en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In these circumstances, it was held that the expenditure incurred by the assessee was in the nature of revenue expenditure. It was an expenditure incurred for running the business or working it with a view to producing profits without the assessee gaining any advantage of an enduring benefit to itself. The position in the present case is also similar. Shri Vaish also invited our attention to the decision of the Allahabad High Court in CIT v. Kanodia Cold Storage [1975] 100 ITR 155. In that case, the assessee made a payment of Rs. 14,742 to an electric supply undertaking towards cost of transformer and service line for replacing the existing line to enable it to have higher electric power for its cold storage business. There also the ownership of the line newly put in was to vest in the electric supply undertaking. The High Court, applying the principle laid down by the Supreme Court in the case of CIT v. Mahalakshmi Textile Mills' Ltd. [1967] 66 ITR 710, held that the expenditure was in the nature of revenue expenditure. It was pointed out that the already existing line was the appliance through which the assessee received power for its cold storage. The object of incurring the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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