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TMI Blog1977 (8) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... cludible in the capital employed in the industrial undertaking having regard to rule 19 of the Income-tax Rules, 1962? (4) Whether, on the facts and in the circumstances of the case, the payment of the advance tax under section 212(3) of the Income-tax Act, 1961, was made on March 1, 1963 ? " At the outset it may be stated that out of the aforesaid four questions it is unnecessary to set out in detail the facts concerning question No. 3, inasmuch as, in our view, the answer to that question is covered by two decisions, one of the Gujarat High Court and the other of the Allahabad High Court, the former in CIT v. Elecon Engineering Co. Ltd. [1976] 104 ITR 510 (Guj) and the latter in Addl. CIT v. Hind Lamps (P.) Ltd. [1977] 106 ITR 360 (All). Following the principle of adopting uniformity on questions arising under fiscal statutes we would answer the question having regard to the aforesaid two decisions. In view of the said two decisions, the question is answered in the affirmative and in favour of the assessee. Turning to the first question it may be stated that it relates to the sum of Rs. 12,319 which was said to have been spent by the assessee-company on repairs of an approa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was clearly distinguishable on the ground that in that case it was the lessor (owner) who had claimed the expenses while in the instant case before it, the assessee was the lessee and had taken the land together with the existing kacha road on lease and, therefore, if for the purpose of business which the assessee was about to commence it was necessary to spend the amount of Rs. 12,319 for remaking of the road, the expenditure could not be of revenue nature. Secondly, on facts, the Tribunal took the view that having regard to the nature of work undertaken, which was evident from the bill dated March 13, 1962, which had been presented by the contractors and paid by the assessee-company, it was clear that it was not an ordinary repair that was carried out in respect of the existing road but the expenditure was incurred on nothing short of remaking the road which was in a way altogether a new road. In this view of the matter, the Tribunal held that the expenses were of capital nature and disallowance was justified. At the instance of the assessee, the first question has been referred to us for our determination. Mr. Mehta appearing for the assessee has contended before us that hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be undertaken. The very fact that such was the nature of work undertaken goes to show that after the amount had been expended the kacha road was really converted into a new road and in fact the Tribunal has recorded a finding in these words : " Therefore, the bill itself shows that it was not an ordinary repair that was carried out to an existing road, but it was nothing short of remaking the road which was, in a way, altogether a new road. " In view of this factual finding, which has been recorded by having regard to the nature of work mentioned in the bill which was available on record, it will be difficult to accept Mr. Mehta's contention that by incurring the expenditure in question the assessee-company could be said to have merely undertaken the job of carrying out repairs to the existing road or even substantial repairs to the existing road. Even the rate at which the work done was charged by the contractors to the assessee-company, viz., Rs. 115 per 100 sq. ft. also shows that what was undertaken by the assessee-company could not be regarded as mere work of repairing the existing road. The expenditure, in our view, therefore, cannot be regarded as revenue expenditure but wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, the Panipat Co-operative Sugar Mills, had spent Rs. 6 lakhs on the conversion of the kacha approach roads to its mills into metalled roads and contended that the expenditure had been incurred mainly to ensure that the sugarcane supplied to its mills were fresher. On the question whether the expenditure was allowable as revenue expenditure, the Punjab High Court took the view that though a road became comparatively more permanently restored by metalling, the conversion of a kacha road into a metalled one did not amount to the construction of a new road, that the roads did not belong to the assessee nor could it have any control over them, that the expenditure was incurred on account of business expediency, namely, the effort to get fresh sugarcane which yielded higher percentage of sugar, that the kacha road was a permanent inconvenience and the expense incurred by the assessee to get rid of this inconvenience could not be held to have brought to it a lasting advantage. On the facts which obtained in that case, the court took the view that the metalling of the roads in that case amounted to their repair and the expenditure incurred was revenue expenditure allowable under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure and not revenue expenditure and, therefore, disallowance thereof was perfectly justified and the first question will have to be answered in the affirmative and against the assessee. Turning to the second question it may be stated that the question really turns upon the proper interpretation of s. 84 of the 1961 Act and r. 19 of the I.T. Rules, 1962. It appears to us that the assessee-company had incurred preliminary expenses and share capital issue expenses amounting to Rs. 1,27,412 and, according to the assessee, in working out " capital employed in the industrial undertaking " in accordance with the provisions of s. 84 read with r. 19, these expenses ought not to have been excluded. It may be stated that s. 84 confers certain benefits to an assessee in respect of a newly established industrial undertaking and in working out such benefits the capital employed in the new industrial undertaking is required to be calculated as laid down in r. 19 of the I.T. Rules, 1962. Section 84 reads thus : " Section 84. (1) Save as otherwise hereinafter provided, income-tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking. This view of the ITO was upheld by the AAC by observing : " The preliminary expenses and share capital issue expenses do not represent any tangible asset, and are in the nature of a fictitious asset. They have been correctly kept out in the computation of capital invested in the industrial undertaking. " The Tribunal also rejected the contention of the assessee. On behalf of the assessee two decisions of the Supreme Court-one in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52 and the other in the case of CIT v. Malayalam Plantations Ltd [1964] 53 ITR 140--were relied upon to support the claim. The Tribunal clearly pointed out that those two decisions did not really decide the point at issue before it but the only question involved was whether the particular type of expenditure was capital expenditure or revenue expenditure. The Tribunal felt that the issue that had been raised by the assessee was not whether the preliminary expenses and share capital issue expenses were capital expenditure and not revenue expenditure but was whether the expenses being of capital nature were includible in the " capital employed in the industrial undertaking " or not. The Tribunal co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side for the purpose of drawing a proper balance-sheet, but it is common knowledge that whenever a company starts earning profits and profits become available these expenses which are shown on the assets side are written off, partly or wholly, depending upon availability of profits and in this behalf we may point out that in the very first report of the directors and balance-sheet and profit loss account of the assessee-company for the year ended 30th June, 1962, such preliminary expenses have been actually written off partially. In the directors' report a part of the surplus of Rs. 2,23,825 (profits) is recommended to be utilised for writing off preliminary expenses to the extent of Rs. 54,824 and the item of " miscellaneous expenditure " as particularised in Sch. 7 is indicated after deducting the portion that has been so written off. Therefore, ordinarily, such assets by way of preliminary expenses and share capital issue expenses which are invariably thus written off when profits are available cannot be regarded as real assets which can be taken into account for the purpose of computing "capital employed " in an industrial undertaking. Secondly, it is difficult to say that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AAC and when the matter was carried to the Tribunal, the Tribunal, ultimately considered the question of charging the penal interest from the point of view of s. 217 of the Act . On behalf of the assessee, it was contended that an estimate of advance tax was filed by it on February 25, 1963, and tax with reference to that estimated income had been paid by the assessee-company on March 1, 1963. The assessee-company actually produced the discharged cheque in that behalf which had been issued on February 28, 1963, for payment of advance tax for inspection of the Tribunal. Even so the department's representative did not accept the payment as having been made on March 1, 1963, as according to the counterfoil of the challan received from the Reserve Bank at which the payment was made the date of payment was shown to be March 4, 1963, and not March 1, 1963. The Tribunal, however, found that although the cheque could be said to have been presented for payment on the first occasion on March 1, 1963, it was actually paid out in the clearing on March 2, 1963, and, therefore, the earliest date on which the payment could be said to have been made by the assessee and received by the Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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