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TMI Blog1977 (3) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The Board framed a scheme and in pursuance of the scheme the assessee constructed 1,424 miners' quarters during the assessment years 1964-65 and 1965-66. According to the said scheme, the quarters were to be constructed by the assessee-company in accordance with the specifications laid down by the Board and the Board was to pay a maximum amount of Rs. 3,100 per quarter to the assessee-company. The quarters thus constructed including the site on which the quarters stand belong to, and vest in, the Board. The quarters shall be used for providing residential accommodation to the labourers employed by the assessee-company. The buildings shall be durable for an estimated life of 15 years as per the specifications of the Board. The terms of the assessee's agreement with the Board would be in force for a period of 15 years from the date of completion of the quarters and the assessee would be paying a nominal rent of Re. 1 per month for each tenement to the Board. The allotment and control of the use of accommodation is entirely in the discretion of the assessee so long as the allotment is made only to the labourers employed by the assessee. Towards the quarters constructed in the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quarters constructed are not the property of the assessee, that the assessee merely wanted to take advantage of an amenity which the Board wanted to provide for the members of the assessee's staff and that in so taking advantage, the assessee had to incur certain expenditure, the result of which is not permanent in nature but would endure only for a limited period of 15 years. It is argued that the quarters do not constitute any such asset of the assessee-company as to characterise the expenditure incurred as capital in nature. According to Sri Satyanarayana Rao the amounts were spent in the course of business for securing comforts and conveniences to the employees for a limited period and not to secure a permanent benefit to the company. Reliance is placed by Sri Satyanarayana Rao on CIT v. T. V. Sundaram Iyengar Sons (P.) Ltd [1974] 95 ITR 428 (Mad), CIT v. Associated Cement Companies Ltd. [1974] 96 ITR 650 (Bom) and also Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC). Neither " capital expenditure " nor " revenue expenditure " has been defined in the repealed Indian I.T. Act, 1922, or the I.T. Act, 1961. The two kinds of expenditure are substantially different and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. v. CIT [1955] 27 ITR 34 (SC), for the purpose of carrying on its business of manufacturing cement, the Assam Bengal Cement Company Ltd. acquired from the Government of Assam a lease of certain limestone quarries for a period of twenty years on half-yearly rents and on certain royalties. In addition to the rents and royalties, the company agreed to pay the Government annually a sum of Rs. 5,000 during the whole period of the lease as a protection fee and in consideration of this payment, the Assam Government undertook not to grant to any person any lease, permit or prospecting licence for limestone in a group of quarries without a condition that no limestone should be used for the manufacture of cement. The cement company, also agreed to pay Rs. 35,000 annually for five years as a further protection fee and the Government in consideration of that payment gave a similar undertaking in respect of the whole district. The question was whether the sums of Rs. 5,000 and Rs. 35,000 paid by the cement company to the Government should be treated as revenue expenditure or as capital expenditure. While resolving the question and holding the sums to be in the nature of capital expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit for a sufficiently long period and not a mere short-lived benefit. In Taj Mahal Hotel v. CIT [1967] 66 ITR 303 (AP), a Division Bench of this court held that a sum of Rs. 60,000 spent by the Taj Mahal Hotel for constructing new rooms for the comfort and convenience of guests is capital expenditure and not revenue expenditure. The assessee in that case was carrying on hotel business. In the year 1956, he took a fresh lease on a hotel building for 10 years on a rent of Rs. 1,300 per month with an option to renew the lease for another 10 years on an enhanced rent of Rs. 1,400. Under the lease deed, the assessee was given the liberty of making any alterations or new constructions with the permission of the lessor. On the termination of the lease, the assessee was entitled to take away the fittings and fixtures while the structures remained the property of the lessor. During the accounting year 1956-57, the assessee put up new rooms for the comfort and convenience of guests and claimed the expenditure of Rs. 60,000 as allowable deduction either as rent spread over a number of years or as a revenue expenditure. The Division Bench held that the improvements effected by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or working it with a view to producing profits without the assessee gaining any advantage of an enduring benefit to itself. In CIT v. T.C.C. Ltd. [1973] 87 ITR 66 (Ker),the assessee is a public limited company engaged in the manufacture of chemicals. Along with three other public undertakings, the assessee approached the Government of Kerala for laying a new road from the place where the assessee's factory is situated. The assessee was supplying a portion of its products to the three companies which joined it in approaching the Government. The assessee was receiving and despatching the materials required for and produced in its factory through lorries. At the material time the area in which the assessee-company was situate was not served by pucca roads. The Government of Kerala and the companies agreed that the Government will bear the cost of the acquisition of land and 25% of the cost of construction of the road and that the four companies will share 75% of the cost of construction. The assessee claimed to deduct this share amount from its total income as revenue expenditure for the year in question. The Kerala High Court held that by the construction of the road, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a deduction in determining the profits of the assessee. As observed already, each case of expenditure has to be decided on its own merits mainly with reference to the aim, object and result of the expenditure. In the instant case, the expenditure in question was incurred by the assessee as a measure of business expediency. The Board agreed for the construction of 1,424 quarters for the miners employed by the assessee. The Board also agreed to incur an expenditure of Rs. 44,14,400 in the first year and Rs. 33,70,317 during the second year. The work of construction was taken up by the assessee and, while executing the work the assessee had to incur extra expenditure. The assessee did not acquire any ownership over the quarters. The ownership vested only in the Board. The assessee had to pay to the Board a monthly rent, even though the sum is nominal. No doubt, as pointed out by Sri Rama Rao, the expenditure was made by the assessee once for all but this circumstance by itself cannot be a ground to hold that the expenditure is capital in nature. As pointed out the Lahore Full Bench in Benarsidas Jagannath, In re [1947] 15 ITR 185, it is not enough if the expenditure is made once an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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