TMI Blog1962 (6) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... panies that may be formed by the party of the second part, the sole monopoly for starting and working a factory or factories for proofing of cloth of various types and that the State will not grant any licence or permit nor will it allow any other person, firm or company or other association, to manufacture articles similar to the articles manufactured by the party of the second part for a period of at least ten years from the date of the starting of the industry. 2. The State hereby agrees that in respect of any land or other immoveable property purchased by the party of the second part which is in any way connected with the industry, no tax in addition to the existing tax that may be payable by the landlord to the State shall be levied on the party of the second part to the intent that save and except the existing landlord's burdens in respect of immoveable properties, the party of the second part shall not be bound to pay any other tax of any other kind whatsoever (excepting non-agricultural cess that may be levied in accordance with the Land Revenue Code of the State and applied to other subjects of the State) that may be levied by the State in respect of any property wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent their grey cloth to the assessee company for bleaching, dyeing and processing at Bhor. The dyes and chemicals for bleaching were purchased in British India. The said three companies of the Thackersey group made payments for the work done by the assessee company by cheques. The cheques were drawn on British Indian banks. In the relevant assessment year the assessee company paid a sum of ₹ 34,650 to the Bhor Darbar in pursuance of the aforesaid seventh clause of the agreement of date 18th February, 1943. We are here concerned with the claim of the assessee that the amount of ₹ 34,650 was allowable as a deduction, it being a revenue expenditure and the claim of the revenue that the payment made to the assessee company by the three companies of the Thakersey group by cheques was income received by the assessee in British India. The Income-tax Officer had rejected the claim of the assessee to the deduction of the said amount of ₹ 34,650 and had upheld the claim of the Revenue that the said amount received by cheque by the assessee company was income received by the assessee company in British India within the meaning of section 4(1)(a) of the Indian Income-tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of case and has referred to us the following question: Whether on the facts of the case the Tribunal misdirected itself in making the order of remand, which it made on 9th May, 1958, in Income-tax Appeal No. 8639 of 1956-57? We will number as No. 1 the question referred to us under section 66(1) and the other question as No. 2. We will first deal with the first question. We may at the outset state that though before the income-tax authorities and the Tribunal the assessee had been claiming that the entire expenditure of ₹ 34,650 was a revenue expenditure, Mr. Palkhivala has conceded before us that a portion thereof as may be attributable to the obtaining of concession in the matter of payment of income-tax cannot be claimed as revenue expenditure, the payment of tax not being a revenue expenditure. He, however, contended that excluding that sum the remaining balance is allowable as a revenue expenditure, and therefore, should have been deducted from the profits. Payment made by the assessee under the agreement is made in consideration of four items, viz., the concession granted under clause (1) of the agreement, i.e., the grant of sole monopoly of starting and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gards the payments attributable to obtaining concessions in the matter of payment of enhanced property tax and immunity from the application of the Factories Act, his contention is that the payments made to workers and the expenditure required to be incurred for payment of property tax is a revenue expenditure and, therefore, any amounts paid in obtaining concession in those respects is also revenue expenditure. He, therefore, submits that we should direct the Tribunal that the amounts attributable to obtaining concession in the matter of monopoly rights, of exemption from payment of property tax and the exemption from the application of the Factories Act should be apportioned out of the said sum of ₹ 34,650 and be allowed as a deduction on the ground of it being a revenue expenditure. We find it difficult to accept this contention of Mr. Palkhivala. It is indeed true that there is no precise definition as to what is capital expenditure and what is revenue expenditure and the line of demarcation between the two is a thin one. After examining various relevant authorities, certain principles have been laid down by their Lordships of the Supreme Court in this regard and in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l expenditure. The question however arises for consideration where expenditure is incurred while the business is going on and is not incurred either for extension of the business or for the substantial replacement of its equipment. Such expenditure can be looked at either from the point of view of what is acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge was thus of the nature of capital expenditure and was not an allowable deduction under section 10(2)(xv) of the Income-tax Act. The facts of the present case so far as the contention of the assessee relating to the expenditure attributable to the acquisition of monopoly rights are concerned, are similar and, therefore, in our judgment they fall within the rule laid down by their Lordships of the Supreme Court. The contention of the assessee in this respect is, therefore, overruled. And this brings us to the contentions of the assessee relating to the other two items, viz., expenditure incurred for acquiring exemption in the matter of payment of additional property tax and in the matter of immunity from the application of the provisions of the Factories Act. Mr. Palkhivala contends that the payment of property tax by the assessee would be a revenue expenditure. Instead of paying additional property tax as and when levied, by this arrangement the company had secured a ceiling in respect of its liability in the payment of additional property tax. The expenditure, therefore, is of revenue nature. As regards the immunity secured from the operation of the Factories Act, Mr. Pal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its profits as provided in the agreement. It is clear that the liability incurred was to secure concessions, which would ensure certain set of circumstances for its business presumably with a view that its business calculations do not miscarry on account of levy of any additional burden on the industry at its commencement or during its early stages. Payments made on such account cannot, in our opinion, be said to be made to get rid of an onerous liability of a business which is chargeable to revenue. In fact no liability existed when the liability was incurred. It was incurred not to get rid of any liability but to ensure that no liability would arise. Nor can it be said that it is an expenditure laid out for running the business. In our opinion, therefore, the Tribunal was right in holding that by making these payments the assessee has secured an advantage for the enduring benefit of the business. The expenditure, therefore, in our judgment, is not chargeable to revenue but is a capital expenditure. In this connection Mr. Palkhivala has referred us to certain decisions in Green v. Cravens Railway Carriage Wagon Co. Ltd. [1951] 32 Tax Cas. 359; Wilson v. Nicholson Sons and Daniel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urning to the next question, it would be convenient to state a few facts in order to appreciate the contentions raised by the parties. As already stated, the assessee's business is at Bhor, a place in the then Native State in India. The business was of dyeing, printing and bleaching. In the assessment year during the course of the business the assessee, inter alia, did work for three out of four companies of the Thackersey group. These three companies had their places of business in British India and, in payment for the work done by the assessee, the companies had sent cheques drawn on banks in British India. The Swastik Bank at Bhor acted as the assessee's agent for collection. Swastik Bank presented the cheques at the office of the British Indian banks and, consequently, the cheques were cashed at the office of the British Indian banks. On these facts the contention of the department was that these monies had been received in British India and, therefore, the assessee was liable to be taxed on these receipts. While, on the other hand, the contention of the assessee was that the agreement with the mill-companies was that the assessee had a right to receive monies in Bhor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the case was tried before him. The Tribunal further held that in view of the Supreme Court decision it was the duty of the Appellate Assistant Commissioner to have given the assessee and the Income-tax Officer a specific opportunity of proving whether the cheques were received by hand or were posted and if so at whose request. Reliance was placed on the following observations made by this court in Commissioner of Income-tax v. New Jehangir Vakil Mills Ltd. [1956] 30 I.T.R. 664, 670: But we cannot shut out the necessary inquiry which even from our own point of view is necessary to be made in order that we should satisfactorily answer the question raised in this reference...We cannot overlook the fact that if tax is legitimately due to the revenue, the revenue should not be deprived of that tax even though the department may not have been as vigilant in prosecuting its claim as we should have desired. The Tribunal, therefore, set aside the order of the Appellate Assistant Commissioner and remanded the case to him with a direction to give both the parties an opportunity of leading evidence and to ascertain whether the cheques were sent by post or by hand and whether the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1; [1960] 1 S.C.R. 249, but that cannot have the effect of taking away the force of the obvervations made by this court so far as its application goes in exercise of its power by the Tribunal under sub-section (4) of section 33 of the Act. This court had held that if the court in its view finds it necessary that certain further inquiries be made in the case in order to enable it to satisfactorily decide the case in a taxation matter, it would, in the interest of justice, be open to the court to direct that further inquiries be made in the matter. What has been held by the Supreme Court is that the power cannot be so widely exercised by the High Court acting in exercise of its powers under sub-section (4) of section 66 of the Act, its powers being limited to the questions arising from the order of the Tribunal. But that does not mean that the principle cannot be called in aid by the Tribunal in exercise of its powers, which are of widest amplitude. It cannot be disputed that prior to the decision of their Lordships of the Supreme Court in Ogale Glass Works' case [1954] 25 I.T.R. 529; [1955] 1 S.C.R. 185 importance was not attached to the fact as to whether the cheques by which p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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