9911796707
TMI Blog1952 (1) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... s was revenue expenditure but as this was "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the Commissioner has urged that in paragraph 5 only three questions were mentioned and the third question 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 urged on behalf of the assessee that the amount did not remain in the company's hands but was irrevocably paid away to the trustees of the Pension Funds. Their Lordships held that that expenditure was in the nature of a capital expenditure and brought into existence an advantage for the enduring benefit of the trade and explained it in the latter part of the speech of Lord Cave where his Lordship said:- "The object and effect of the payment of this large sum was to enable the company to establish the pension fund and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 of Income-tax, Madras v. Siddareddy Venkatasubba Reddy and Bros. [1949] 17 I.T.R. 15--There the assessees who were carrying on the business of mining mica and selling it after refinement entered into certain agreements under which in consideration of payment of sums of money in instalments they were granted the mining rights in different plots of land. Reliance is placed on the observations of the learned Chief Justice which are as follows:- "In a broad sense, an assessee can be said to carry on a particular kind of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 1,447 in 1911 and 804 in 1922. The policy of the company was to close shops or to open shops in accordance with the needs of their business as a whole and they found it advantageous to dispose of the fixtures and fittings in a shop given up rather than to transfer them to a newly acquired shop. In such circumstances the company debited in their trading account the difference between the cost of new fixtures and the price obtained for old fixtures and it was held that no deduction was admissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture, 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 be of lasting value; while income or revenue expenses are generally running expenses incurred in earning profit or expenses incurred with the primary object of an immediate return or acquisition of assets which are not of lasting value and are likely to get exhausted or consumed in the process of the return or a very limited number of returns." In British Insulated and Helsby Cables Ltd. [1926] 10 Tax Cas. 155, their Lordships held that a new asset of lasting value was acquired ina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 the beer. The learned Judges were of the opinion that it could not be so done. We need quote a passage from that judgment which is as follows:- "Now, for the first time, as far as I am aware, it is sought to include in the sum to be deducted, so as to ascertain the balance which would constitute the net profits of the concern, sums of money expended, not in the manufacture, but after the production of the article in order to promote the sale or increase the quantities ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
