TMI Blog1952 (1) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... deferred revenue expenditure it spread it over a period of twenty years on the ground that the expenditure was of a heavy character, the benefits of which were likely to extend beyond the year in question upto that anticipated period. They therefore divided ₹ 89,870 by twenty and decided that the legitimate expenses per year were ₹ 4,493 for a period of twenty years. The Commissioner of Income-tax filed an application (Reference Application No. 261 of 1947-48) that the following question be referred to this Court:- Whether in the circumstances and on the facts of the case, the sum of ₹ 89,870 in respect of expenses incurred in opening offices of the bank was an admissible deduction under Section 10(2)(xii) now Section 10(2)(xv) of the Act? The Tribunal was of the opinion that this was a question of law and has referred it to us under Section 66(1) of the Indian Income-tax Act. On behalf of the assessee two applications were filed (Reference Applications Nos. 259 and 260 of 1947-48) with a prayer that the following three questions be referred to this Court for answer:- (1) Whether in view of the finding that the expenditure of ₹ 89,870 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion referred to in paragraph 6 was the last question mentioned in paragraph 5. We do not think that this is right. The Tribunal must have meant the third question framed by the assessee which related to a sum of ₹ 10,000 which the Tribunal had dealt with in paragraph 8 of its appellate order. Coming now to the three questions mentioned above, we may take up the first question that arose in the assessee's application for reference, that is, whether the sum of ₹ 89,870 could be spread over a period of twenty years and allowance made at the rate of 1/20th each year. Learned counsel for the Commissioner has frankly admitted that he can find no provision in the Act for spreading out the expenditure over a period of twenty years. If the amount was laid out and expended wholly and exclusively for the purpose of the business and was not in the nature of a capital expenditure, the whole of it was allowable under Section 10(2)(xv) of the Act. Our answer to this question, therefore, is in the negative, viz., that there was no legal justification for spreading out the sum of ₹ 89,870 over a period of twenty years and the whole of the amount was deductible in that pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of a capital expenditure. From the nature of expenses indicated above it is clear that the amount spent did not produce any new asset. It was incurred merely for the purpose of expanding the ordinary existing business of the company. Reliance has, however, been placed by Sri Das on the observations of Lord Cave in Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 Tax Cas. 155 at 192., which are as follows:- An expenditure to be in the nature of a capital expenditure should not only have been incurred once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. Learned counsel has urged that this expenditure was incurred only once and for all and by reason of the opening of the new branches the company has got an advantage for the enduring benefit of the trade or business carried on by it. In the case before the House of Lords the company, British Insulated and Helsby Cables, Ltd., had contributed a sum of 31,784 to a pension fund to enable the elder members of the existing staff being admitted to the benefits of that fund without any additional contributions on account of their age. It was ur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat if the assessee increased its business at the place where it was being carried on by advertisement in the papers or other such means, e.g., employment of new staff, or by giving special facility to its constituents, that would be normally revenue expenditure. The mere fact that for the purpose of carrying on the same type of business and to attract more business they opened other branches at different places and incurred expenses which did not produce any new asset, that does not to our minds seem to change the nature of the expenditure. It is not a case where an assessee had started a new line of business or acquired new premises or purchased other assets which could be included as an asset in the profit and loss account. It is merely a case where for the purpose of extending the business new branches had been opened and certain expenses had been incurred by way of advertisement etc. We think that it cannot be said that an expenditure of this kind brings in an advantage for the enduring benefit of trade and is, therefore, capital expenditure. The cases cited by learned counsel for the parties are as follows though none of them appears to be very helpful. (1) Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kind of expenditure incurred for extension of a business must be capital expenditure. In fact the use of the words broadly speaking, outlay is deemed to be capital at the beginning make it clear that it would depend upon the nature of the expenditure incurred. We have already given the details of the expenditure in this case and in our view such expenditure cannot be said to be capital expenditure merely because it helped in extending the business of the assessee. Reliance is also placed on the judgment of Lord Hanworth in Eastmans Limited v. Shaw (H.M. Inspector of Taxes) [1928] 14 Tax Cas. 218 at 226 which is as follows:- Upon the facts found it appears to me that the principle of law is clear, and has been rightly applied by the Commissioners and by Justice Rowlatt, that these expenses were incurred anterior to the business or trade which was carried on by this company, that it was in the nature of a capital outlay and a capital loss, and was not to be treated as money wholly and exclusively laid out for the purpose of profit. In that case the assessee company carried on business as butchers and meat retailers and had a very large number of shops varying between 1,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny test which would meet all cases. For example, a firm carrying on the business of plying motor vehicles for hire might decide to increase its business and lay down a new road connecting two places. This would be in the nature of a capital expenditure. If, on the other hand, it spends money every year for the running repairs to the road, that might be in the nature of a revenue expenditure. Similarly, a firm dealing in machinery might buy machinery for sale which would be revenue expenditure, while an industrial concern might buy machinery to replace worn out machinery and that would be in the nature of capital expenditure. Even in the case of an industrial concern minor repairs which have to be frequently made and which are known as running repairs are revenue expenditure, while replacement of costly machinery is capital expenditure. It is, therefore, difficult to lay down any test which could be applied to every case. To my mind, 'capital' means an asset which has an element of permanency about it and which is capable of being a source of income and 'capital expenditure' must, therefore, generally mean an acquisition of an asset and the asset must be intended to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that these are observations of a living author. But for the fact that this passage was quoted in the order of the Appellate Tribunal, though reference was not made to Sundaram's book we would not have made any reference to it. All that we need say is that we find no authority for the view that a special campaign of advertisement merely for the purpose of extending the business must be deemed to be a capital expenditure and not allowable as a permissible deduction under Section 10(2)(xv) of the Indian Income-tax Act. The Tribunal has quoted a decision in Watney and Co. v. Musgrave [1880] L.R. 5 Exch. 241. We have carefully considered that case and are of the opinion that that case does not support the proposition laid down. In that case a brewer had taken a lease of a public house for purposes of letting it out to tenants under covenants to buy beer brewed by him alone and had paid premium for the lease which was for a period of thirty years and the question was whether he was entitled to take all the amount paid by him as premium. The point turned on the decision of the question whether the amount paid as premium could be treated as a part of expenses of production of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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