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TMI Blog1974 (9) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... e circumstances of the case, the Tribunal was right in holding that the expenditure incurred in shifting one out of the three workshops to new premises was of a capital it nature ?" The assessee is the Karnataka State Road Transport Corporation (hereinafter referred to as " the Corporation ") which is mainly engaged in transport business. Pursuant to schemes prepared by the Corporation and approved by the State Government under Chapter IVA of the Motor Vehicles Act, 1939 (hereinafter called " the M. V. Act "), the Corporation got the monopoly of road transport business in the area over the routes to which the schemes related. For the purpose of giving effect to the approved scheme in respect of a notified area or route, the Regional Transport Authority was conferred power under section 68F(2) of the M. V. Act to refuse to entertain any application for the renewal of any permit except permits granted to the Corporation and further to cancel any existing permit. Section 68G of the M. V. Act provides that where, in exercise of the powers conferred by clause (b) or clause (c) of sub-section (2) of section 68F, any existing permit is cancelled or the terms thereof are modified, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nationalisation of the bus routes ; that the compensation was paid to holders of permits who were prevented from operating their services for the remaining period for which their permits would otherwise have been valid. It was urged that by the termination of the permits of private operators the Corporation did not secure any enduring advantage to its business. This argument of the Corporation was accepted in part. In the opinion of the Appellate Assistant Commissioner, compensation paid to private operators when the unexpired period of permits was two years or more can be considered as securing an enduring advantage to the business ; but compensation paid when the unexpired period of permits was two years and less is business expenditure entitled to deduction under section 37 of the Income-tax Act, 1961. In regard to the expenditure of Rs. 80,000 incurred by the Corporation in shifting its regional workshop, the Appellate Assistant Commissioner noted that the Corporation had three different types of work-shops and what was shifted was only the regional workshop where major repairs to vehicles were carried out ; since only a part of the plant and machinery was shifted and not the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advantage of any enduring nature ; that for lack of space part of the regional workshop was shifted ; that the shifting was done departmentally and only book adjustments were made. Therefore, it was argued that the said claim ought to have been allowed as business expenditure. In our opinion, question No. 2 is concluded by the decision of the Supreme Court in Sitalpur Sugar Works Ltd. v. Commissioner of Income-tax. In that case, the assessee carried on the business of manufacturing sugar in its factory situated originally at Sitalpur. That place suffered from the ravages of floods and good quality sugar-cane was not available in sufficient quantity. With a view to improving its business, the assessee shifted its factory to Garaul and in the process of dismantling the building and machinery and transporting and erecting them at Garaul incurred an expenditure of Rs. 3,19,766. The assessee claimed that the said amount was a permissible deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Supreme Court rejected that claim holding that the expenditure was not incurred for the purpose of carrying on the concern but was incurred in setting up the concern with a gre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar answer to the contention of the Corporation. The cost of transferring the regional workshop to new premises is not an item of expenditure incurred for the year in which the shifting was done, but for the general interests of the business of the Corporation and its enduring benefit to the Corporation and, therefore, is not a proper deduction from income. The Tribunal, therefore, was right in the view it has taken that the said amount of Rs. 80,000 is not allowable as deduction. We shall now deal with question No. 1. In order to appreciate the rival contentions, it is necessary to refer to the relevant provisions of the M. V. Act. The provisions relating to State Transport undertakings are contained in Chapter IVA of the M. V. Act introduced by Central Act 100 of 1956 which came into force on February 16, 1957. The object of introducing Chapter IVA was that it is necessary in the public interest that road transport services in general or particular class of such service in relation to any area or route or portion thereof should be run and operated by the State Transport undertaking, whether to the exclusion, complete or partial, of private operators. That object is sought to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncel an existing permit or modify the terms of an existing permit. For the extinction of that right provision is made for payment of compensation by the State Transport undertaking. The provision for payment of compensation is an integral part of the scheme of nationalisation of road transport services whereby the State transport undertaking gets a monopoly of the transport business. The State Transport undertaking is not a transferee of the existing permits of the private operators. The scheme of Chapter IVA is that, in order to secure monopoly of transport business in respect of any area or route, the State Transport undertaking shall pay compensation in the manner provided by the M. V. Act. In this context it may not be out of place to refer to the amendment to article 19(6) of the Constitution. The monopoly of road transport business granted by schemes was challenged by private operators as being violative of the fundamental rights guaranteed under article 19(1)(g) of the Constitution. The result of the Fourth Amendment of the Constitution is that the State is not required to justify its action as reasonable at all in a court of law and no objection can be taken to it on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considerations in dealing with the test suggested by Lord Dunedin in Vallambrosa Rubber Co. Ltd. v. Farmer. One of these additional factors suggested by Lord Cave is that the expenditure must be with a view to bring into existence an asset or an advantage. The other additional and alternative factor is that for a payment to be capital item, it has to be made for the enduring benefit of the business. A payment to get rid of an undesirable capital asset will be to the enduring benefit of fixed capital. In Collins v. Joseph Adamson Co. it was held that a sum paid for the purpose of getting rid of an undesirable competitor was a capital payment. In Bradbury v. United Glass Bottle Manufacturers Ltd. 4 Harman J., in the course of his judgment, discussed the principles in Atherton's case and put the matter like this : " The true question is what does the company get for its expenditure. If the answer be that it is something of an enduring character ......... then the expenditure is a capital expenditure." In Bean v. Doncaster Amalgamated Collieries Ltd. , at page 312, Viscount Simon spoke thus : " The borderline between revenue and capital expenditure is sometimes difficult t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strong reliance on this case but, in our opinion, it is clearly distinguishable from the facts of the instant case. In Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. , all that was done was that the B company was made to shut its business down for a period of twelve months. Sri Sarangan also relied on the decision of the House of Lord in Strick (Inspector of Taxes) v. Regent Oil Co. Ltd. The House of Lords reviewed its earlier decisions and, explaining as to what is meant by "enduring benefit" in the speech of Lord Cave, this is what Lord Reid said : " Lastly, what is meant by 'enduring' ? I think that Lord Cave intended to link that with once and for all. He was thinking of a single payment for an advantage which would last for an indefinite time. I do not think he had in mind an advantage of limited duration, and I think that any decision about such an advantage must be reached without reference to or reliance on what Lord Cave said." The question in the instant case is whether the Corporation acquired an enduring benefit on payment of compensation to private permit holders on the basis of the period of the unexpired portion of their permits ? The Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpensation paid to the permit holders where the period extended over two years was rightly treated as of a capital nature ........" The payment of compensation by the State Transport undertaking is an integral part of the scheme of nationalisation of bus routes. When once the scheme becomes final and exclusion of the private operators is complete or partial, the State Transport undertaking, in our opinion, obtains an enduring benefit of monopoly of road transport business. The holders of the existing permits are not entitled to apply for renewal of their permits, which otherwise they would have been entitled to. Therefore, the advantage obtained by the Corporation of monopoly of road transport business is of an enduring nature. Without payment of compensation as provided under the M. V. Act, the Corporation could not have obtained the monopoly. The compensation paid is for securing the monopoly of road transport business and that monopoly is not of any short duration, but is of an enduring character. Viewed in this light the compensation paid is for securing an advantage for the enduring benefit of the Corporation. It is not an advantage of limited duration. Therefore, the perio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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