TMI Blog1988 (7) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... -1-1982. Therefore the Income-tax officer concluded that the expenditure was capital in nature. Consequently he disallowed the same. The Inspecting Assistant Commissioner considered the objection of the assessee and held that the action of the Income-tax Officer was correct and is in accordance with the ratio of the decision of the, Supreme court in the case of sitalpur sugar Works Ltd. v. CIT [1963] 49 ITR 160 wherein the expenditure incurred incurred by the assessee in that case in shifting its sugar factory from Sitalpur to Garwal was capital in nature by the Supreme Court and the assessee was also not entitled to depreciation as no improvement was made in the capital asset in the sense that there was no increase in the value thereof. 22. Before the Commissioner (Appeals) the assessee contended that it was in covenant to conduct the business at Madurai but it was connected by road, rail and air to the principle places of business and branches. It was further submitted that the assessee had not raised any construction for locating its office but the offices were situated in hired buildings taken on lease and the expenditure pertained to packing the files, furniture and other of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etting up a concern or factory with greater advantage for trade. As is observed earlier the details of expenses were not furnished before us not it was gone into item by item by the authorities before us nor it was gone into item by item by the authorities. The expenditure was incurred in the background of merger of three different companies viz., M/s. Madura Mills Co. Ltd., M/s. A and F Harvey Ltd and M\s. J. P. coats India Ltd., on account of which the assessee company was formed. As a result of this merger the assessee company had production units in various centers including the one at Madurai and the volume of the assessee's business transactions also multiplied many times. It had to deal with numerous constituents spread over the whole length and breadth of India. There was also imerative need to make movements and communications with other cities quicker and easier. Accordingly it was considered commercially expedient to shift the administrative office to Bangalore. The Income-tax Officer has indicated in the draft assessment order that the volume of business has increased for the year under consideration compared to earlier years. In the absence of break-up details of expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred resulted in a benefit which is in the capital field or in the revenue field so to say was applied. Although according to the assessee there is no case of dismantling buildings, plant and machinery and erecting them in the new place of administrative office nonetheless the expenses were incurred not for carrying on the business but to establish the administrative office in a new place the benefit of which endured not only for the year under consideration but also for all the years to come. Therefore we are not in agreement with the observation of the Commissioner (Appeals) that shifting of administrative office is purely of temporary nature and it was not made with a view to get any additional advantage. The commissioner (Appeals) has also noted that the shifting was necessitated by the growth of the business which is the vital fact and for this purpose the shifting of administrative office was done. Since the authorities have not gone into the question of bifurcation of item wise expenses which are revenue and capital in nature we decline to go into the same, as the assessee has not furnished such details before us. Further reliance can be placed on the decision in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his point and restore the order of the Income-tax Officer. 26 to 28 [These paras are not reproduced here as they involved minor issues]. Per D. S. Meenakshisundaram, Judicial Member - I have perused the order proposed by my learned brother disposing of the two appeals filed by the assessee and the department. I respectally agree with him on all the points in these two appeals, except in regard to ground Nos. 13 and 14 in the department's appeal relating to shifting expenses amounting to Rs. 2,36,353. This point is dealt with by my learned brother in paragraphs 21 to 25 of his order. I regret my inability to agree with him on this point for the following reasons. 2. In paragraph 2.5 of the draft assessment order dated 16-1-1982 the income tax officer accepts that during the year of account the administrative offices of the assessee company were shifted to Bangalore and that the sum of Rs. 2,36,353 represented part of the expenditure incurred towards payment of travelling expenses to staff movement of furniture and records etc. Thus, there is no dispute between the parties about the nature of the expenditure incurred by the assessee under this head. The dispute is only in regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set has been brought into existence by the incurring of this expenditure by the assessee-company. According to the department, the assessee-company had secured an advantage of an everlasting nature by the shifting of the administrative offices from Madurai to Bangalore. But on the facts accepted by the Income-tax officer in paragraph 2.5 of his draft assessment order and on the facts accepted by the IAC in paragraph 8 of his directions u/s 144B, it is clear that the expenditure in question did not bring into existence any advantage of an everlasting nature to be called an enduring advantage to regard as capital expenditure. 6. In Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, the Supreme Court held as follows : "The decided cases have, from time to time, evolved various tests for distinguishing between capital and revenue expenditure but no test is paramount or conclusive. There is no all embracing formula which can provide a ready solution to the problem no touchstone has been devised. Every case has to be decided in its own facts, keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. But a few tests formulated by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case. As pointed out by their lordships it is not every advantage of enduring nature acquired by an assessee that brings the case within the principles laid down in the test of obtaining an advantage of enduring benefit. As held by Their Lordships, what is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. It the advantage obtained by the assessee merely facilitates the assessee's trading operation or enabling the management and conduct of its business more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account. though the advantage may endure for an indefinite period. In the present case the fixed capital of the assessee is not at all touched by this expenditure. It is accepted by the departmental authorities as could be seen from paragraph 2.5 of the draft assessment order and paragraph 8 of the IAC's directions, that the expenditure in question was incurred for carrying on the business more profitable and more efficiently. Hence I would agree with the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly files, furniture, etc. Some expenditure was also incurred in travelling for personnel involved so that the total expenditure came to Rs. 2,36,353. This claim was disallowed by the Income-tax Officer, Central Circle I, Madurai, on the ground that by incurring this expenditure, the assessee shifted its Administrative Office thereby securing a permanent advantage of enduring nature. The assessee-company claimed before the ITO that the office shifting expenses did not bring into existence any capitalists and the same was incurred only to improve the administrative efficiency and reliance was placed on the decision of the Supreme Court in the case of Lakshmiji Sugar Mills Co. [P.] Ltd. v. CIT [1971] 82 ITR 376 and Empire Jute Co Ltd's case. The ITO, however, as mentioned above, took a different view because he found that there was a progressive increase in turnover and profit and that was possible only by the shifting of the Administrative Office from Madurai to Bangalore and this endured for a permanent advantage. 3. When the matter came on appeal before the CIT (A), he observed after examining the claim of the assessee, that the assessee did not acquire any advantage of an endur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the advantage might endure for an indefinite period. He found that the draft assessment order and the IAC's directions clearly shown that the expenditure in question was incurred for carrying on business more profitably and more efficiently. He also held that the decisions relied upon by the Revenue and referred to by the learned Accountant Member were distinguishable because they turned on the peculiar facts a sin all those cases a new capital asset was brought into existence by the shifting expenditure. It was in these circumstances that the difference of opinion arose and the following point of difference was referred for the opinion of the Third Member : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,36,353 incurred by the assessee for setting up its administrative offices at Bangalore is allowable as revenue expenditure in the computation of its business income ?" 6. I have heard the learned counsel for the assessee, Shri R. Vijayaraghavan, and also the learned Departmental Representative, Shri V. D. Gopal, at sufficient length. The learned Departmental Representative pointed out that the shifting of the Administrative Office must be seen not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and binding on the Tribunal also, that expenditure incurred other than on dismantling and re-erection of machinery was incurred only on shifting of files, furnitures, etc., and not on dismantling and re-erection, the entire expenditure should be held to be revenue expenditure. He submitted that it was a common ground that the factory was never shifted and it was only for more convenient and efficient management that the Administrative Office alone was shifted, and following the enunciated law by the Supreme court in Empire Jute Co. Ltd.'s case, any expenditure incurred for more convenient and efficient management of business should be held to be revenue expenditure and as it was so held by the learned Judicial Member, the amount must be allowed as an allowable deduction. He also submitted that the recent trend of judicial decisions was to allow even technical know-how as revenue expenditure. Such being the case, the expenditure incurred on shifting of files, furnitures, etc., from one rented premises to another rented premises should not be held to be of capital nature. Referring to another decision given by the Madras High Court in CIT v. Madras Auto Service Ltd. [1983] 13 Taxman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the AAC. But, on a reference at the instance of the Revenue, the Patna High Court held that there were advantages by shifting the head office from Jamshedpur to Calcutta, that the shifting of the head office was not a regular feature that the advantage derived from shifting would undoubtedly be of an enduring character and was to last for ever and though the expenditure incurred on account of shifting was incidental to the business of the factory, yet a distinction had to be drawn between expenses which were for securing an advantage of an enduring nature and expenses for activities which were of recurring nature, and the expenditure incurred in this case by shifting was capital expenditure. In its opinion, whether there was shifting of factory or shifting of the head office was inconsequential. It relied upon the decision of the Supreme Court in Sitalpur Sugar Works Ltd.'s case. Now, this is a case where the head office of the company was shifted from one place to another place. shifting of the head office of the company is somewhat akin to the capital of the State. It does involve a new set up which gives a permanent advantage to the assessee-company unlike in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered and relied upon by the learned Accountant Member in his order and also the decision of the Supreme court in Empire Jute Co. Ltd.'s case, the case relied upon by the learned Judicial Member in support of his view. Thus, this appears to be a case where all the decisions considered by both the Members were fully considered by a Superior Body but yet a decision in favour of the assessee was given by holding that even if the expenditure included the expenses on refitting the plant and apparatus in the new premises, yet the expenditure was of revenue nature. The Calcutta High court declined to accept the criteria laid down by the Karnataka High court in the case of Mysore State Road Transport Corpn. so strongly relied upon by the learned Accountant Member. In this case the Karnataka High Court quoted with approval the observations in the case of Granite Supply Association Ltd. an held that the cost of transferring the regional workshop to new premises was capital expenditure. This principle was not accepted by the Calcutta High Court as laying down the correct criteria. Speaking for the Calcutta High Court, the learned Judge Shri Sabyasachi Mukharji, as His Lordships then was, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem in great detail. 9. As a matter of fact, it is an undisputed fact that the entire expenditure incurred in this case was only on shifting of files, typewriters, furnitures etc. from one rented premises in Madurai to another rented premises in Bangalore and no permanent asset was acquired. when even shifting of laboratories which involved demolishing of an asset at one place and reconstruction at another place the expenditure incurred therein was held to be of revenue nature, it must be more so when no such expenditure at all was incurred except the freight on shifting of files and other furnitures of the office. Suppose in the same place if the office is shifted from one rented premises to another rented premises, the expenditure incurred in shifting the office furniture, files etc. would certainly not be held to be on capital account. Merely because such expenditure was incurred in shifting the Administrative Office from one city to another city, it does not alter the character and nature of the expenditure. A businessman would always try to secure higher and higher advantages and would always aim at retaining the advantages so secured for as long a period as possible. In eve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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