TMI Blog2001 (1) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaken by Government department to help the cultivators who were under no compulsion to sell their sugarcanes to the assessee. The Commissioner of Income-tax (Appeals) ought to have sustained the disallowance following the decision of the Kerala High Court reported in 135 ITR 540." 2. The assessee is a cooperative society carrying on the business of manufacture and sale of sugar. It filed a return of income on 31-10-1991 declaring an income of Rs. 69,34,600. It claimed deduction, inter alia, of an amount of Rs. 25 lakhs being the amount contributed to the Irrigation Department of the State Government of Kerala for cement lining of an irrigation canal, called Moolathara Right Bank Canal. The assessee entered into consultation with the Irrigation Department and agreed to contribute the amount of Rs. 25 lakhs as its share towards the cost of lining the canal. The background of the proposal is contained in a note submitted to the Board of Directors of the assessee-company for its meeting held on 14-2-1991 and the said note reads as under: "Item No. 27: Consideration of payment of substantial amount towards cost of lining of Moolathara Right Bank Canal by the Society--Reg: Manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilised even the eris and tanks can be filled up frequently. The Minor Irrigation systems like Ankarath Valieri, Karadippara, Tharaganchalla lift irrigation systems can be supplemented if the Moolathara Right Bank Canal is lined and water could be assured to all the Ayacut areas and sugarcane could be grown in about 1500 acres without any difficulty. The existing cane area is about 500 acres which are supplemented through wells and cries lying in the beginning of canal. The project report has already been prepared by the Executive Engi neer, Irrigation Division, Chitturpuzha Project, Chittur vide his letter A8.3286/90 dt. 30-8-1990. The total estimate is worked out to Rs. 112 lakhs @ Rs. 8 lakhs per km. 14 km. length. The copy of the above letter with details of estimates are submitted herewith for kind perusal. In the meeting, conveyed by the Hon'ble Minister for Industries, Trivandrum on 24-1-1991 at Trivandrum, our Cane Department Officers and Government Irrigation Engineers attended; the Hon'ble Minister assured substantial financial assistance from the sugar factory towards the total cost of lining remaining by Government Irrigation Department. The work is to be taken up as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is made for the lining of Moolathara Right Bank Canal. The benefit earned by the assessee is that an additional area of 1500 acres can be used for drawal of sugarcane for the society, which is an advantage of enduring benefit only. The expenditure is not for developing any existing area in order to increase the existing yield. 9. The decision of the Hon'ble Supreme Court reported in 125 ITR 293 is distinguishable from the facts of the present case. In the reported case, the assessee expended an amount of Rs. 50,000 for the purpose of construction of roads to facilitate the transport of sugarcane to the factory and the outflow of manufactured sugar from the factory to the Market Centres, thereby making the business more efficient and profitable without an advantage of enduring benefit. In the instant case, the expenditure of Rs. 25,00,000 is made for getting an additional area of 1500 acres for drawal of sugarcane by which the assessee earned only the advantage of enduring benefit. In the circumstances, I am not satisfied that the conditions laid down in section 37(1) of the Act are fulfilled. I, therefore, hold that the contribution of Rs. 25,00,000 paid by the assessee for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) to allow the claim of the assessee. It is also mentioned that the decision of the Apex Court in the case of Associated Cement Companies Ltd., relied upon by the CIT (Appeals) is quite distinguishable, because in that case the assessee received a remission of Municipal taxes for the contribution made to the Municipality for laying pipe lines. There is no such qua pro quo received by the assessee-company in the present case from the Irrigation Department, and so it is pleaded that the ratio of the said decision of the Apex Court is not applicable to the facts of the present case. 7. The learned counsel for the assessee pleaded that the assessee-company was located in a Draught-prone area of Palakkad District and it could never achieve the installed capacity of crushing 1200 tons of sugarcane per day because of the scarcity of sugarcane. The maximum it could achieve was 900 tons per day, and by the said contribution of Rs. 25 lakhs, about 1500 acres of land could be brought under irrigation and it facilitated the securing of sugarcane. He conceded the contention of the learned Departmental Representative that there was no agreement between the assessee and the growers of sugarcane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in the context of his argument that the assessee did not derive any benefit from the contribution of Rs. 25 lakhs. That the assessee did not derive any benefit from the contribution of Rs. 25 lakhs is altogether a new case made out by the learned Departmental Representative before us. it was not at all the case of the Assessing Officer, as is evident from the extract of his order given by us hereinabove. The case of the Assessing Officer was that the assessee derived an enduring benefit and so the expenditure was of a capital nature. This is altogether different from saying that the assessee did not derive any benefit from the contribution, We are constrained to hold that the learned Departmental Representative tried to make out altogether a new case, which is not permissible. At any rate, the minutes of the meeting of the Board of Directors were before the Assessing Officer and this minutes, to our mind, clearly prove that the contribution was made only with the intention of getting water supply for 1500 acres in the Ayacut and to secure more assured supply of sugarcane. The contention of the learned Departmental Representative that the decision of the Apex Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion inasmuch as it would last so long as the roads continued to be in motorable condition, but it was not an advantage in the capital field, because no tangible or intangible asset was acquired by the assessee nor was there any addition to or expansion of the profit-making apparatus of the assessee. The amount of Rs. 50,000 was contributed by the assessee for the purpose of facilitating the conduct of the business of the assessee and making it more efficient and profitable without the assessee getting an advantage of an enduring benefit to itself and was an expenditure on revenue account; and was laid out wholly and exclusively for the purpose of the assessee's business. The test enumerated by Lord Cave L.C. in British Insulated Helsby Cables Ltd. v. Atherton [1925] 10 TC 155 at 192 (HL) to distinguish between capital and revenue expenditure is not of universal application and it must yield where there are special circumstances leading to a contrary conclusion." We are of the view that the present case before us is more akin to the contribution made by the assessee for the laying of the roads. While coming to its conclusion that the amount of Rs. 50,000 is allowable as a deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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