TMI Blog1964 (8) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... The business was commenced from 4th November 1953, but in the very first year of its business, there was a change in the personal on 26th August 1954, and therefore, the accounts for that year i.e. Samvat Year 2010(4th November 1953 to 26th October 1954) were split up into two parts one from 4th November 19953 to 25th August 1954 and the other from 26th August to 26th October 1954. The assessee firm laid out ₹ 22,799/- in Samvat Year 2010 and certain other amounts during the following years, i.e. Samvat Year 2011 and calendar years 1956 and 1957, on the purchase of type for the purpose of business, and during the assessment for the assessment years 1955-1959 claimed thee amounts as allowable expenditure. We are concerned in this reference only with the amount of ₹ 22,799/- spent on the purchase of types during the first year, i.e. Samvat Year 2010. The authorities allowed, however, ₹ 1058/- out of the said amount, so that the controversy in this reference is for the balance of ₹ 21,741/- only. (3) The Income Tax officer negatived the contention urged by the assessee firm on the ground that these types formed part and parcel of the printing machinery and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osts would be expenditure of revenue nature laid out for the purpose of such business. The contention, in other words, was that the expenditure incurred in the purchase of these types was in the nature of trading or operational expenses and that, therefore, they were allowable under clause (xv) of S. 10 (2). (5) As has been often remarked in various decisions, the line of demarcation between capital expenditure and revenue expenditure is a very thin one and therefore, Courts of Law have refrained from attempting to define or lay down any precise definition and have been content to set out only broad tests. These broad tests are however, only workable guides and ultimately, the question always depends upon the facts and circumstances of each case. Bowen L.J. in City of London Contract Corporation v. Styles, (1887) 2 Tax Cas 239, explained the difference between the two types of expenditure by observing that the expenditure in the acquisition of the concern would be capital expenditure and the expenditure in carrying on he concern would be revenue expenditure. Commencing on this dictum, Lord Dunedin in Vallambrosa Rubber Co., Ltd. v. Farmer, (1910) 5 Tax Cas 529, thought that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital expenditure and the expenditure in the process of the earning of the profits was revenue expenditure. A similar view was also expressed by Dixon J. In Sun Newspapers Ltd. and the Associated Newspapers Ltd. v. Federal Commissioner of Taxation, 61 CL R 337 , where the learned Judge observed as follows: But in spite of the entirely different forms, material and immaterial, in which it may be expressed, such sources of income or consist in what has been called a 'profit yielding subject' the phrase of Lord Blackburn in United Collieries Ltd. v. Inland Revenue Comm₹ 1930 SC 215. As general conceptions it may not be difficult to distinguish between the profit-yielding subject and the process of operating it. In the same way expenditure and outlay upon establishing, replacing and enlarging the profit yielding subject may in a general way appear to be of a nature entirely different from the continual flow of working expenses which are or ought to be supplied continually out of the returns of revenue. The latter can be considered, estimated and determined only in relation to a period or interval of time, the former as a point of time. For the one concerns the instru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re maybe attributable to capital when it is made not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, the expressions enduring benefits or of a permanent character were introduced to make it clear that the asset or he right to acquire must have enough durability to justify its being treated as a capital asset; and (3) whether for this purpose of the expenditure, any capital was withdrawn, or in other words, whether the object of incurring the expenditure was to employ what was taken in as a capital of the business. Again it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. The Supreme Court in Assam Bengal Cement Co.Ltd v. Commr of I.T. West Bengal [1955] 27 ITR 34(SC) , approved the synthesis attempted by the Lahore High Court from the various decisions and also approved the three principles enunciated by it a emerging from the authorities, and Bhagwati J. speaking for the Bench, observed that in case where the expenditure was made for the initial outlay or for the extension of the equipment, there could be no doubt that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tear, but the fact that they would require replacement would not necessarily mean that the expenditure incurred in purchasing them would be revenue expenditure, for, replacement would also be there even in the case of the machinery itself which, as a whole or in parts, would necessitate replacement from, time to time. The fact that types would require replacement earlier than parts of the machinery would not, in our view, make any difference in their character and cannot, therefore, be called either raw materials in the business of publishing a newspaper or consumable stores, such as for instance, paper or ink or any such other materials necessary for working the printing machinery. It is true that the sum of ₹ 1, 058/- was allowed in the accounting year Samvat Year 2010 and various amounts were likewise also allowed in the subsequent years, but these were allowed as expenditure incurred for replacing the types. Whatever was the basis for allowing these expenses, the fact remains that they were expenses incurred after the business had commenced and were not treated by the authorities as outlay for the initiation of the business which the amount in question in this reference r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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