TMI Blog1988 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) of the Indian Income-tax Act, 1922, against a judgment and order of a Division Bench of the Bombay High Court. The appeal is preferred by the Commissioner of Income-tax and the assessee, the Associated Cement Companies Ltd., is the respondent. The judgment against which the appeal is directed was rendered on a reference under section 66(1) of the Indian Income-tax Act, 1922. The question referred to the court for consideration was as follows : " Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 2,09,459, or any portion thereof, incurred by the company in the accounting period relevant to the assessment year 1959-60 was allowable as deduction in determining the profits of the company for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee-company was to undertake and complete at its own cost the water supply scheme for the town and village, involving laying of the main water pipelines. The assessee-company was to be the owner of the pipelines, installations and other accessories pertaining to the water supply lying within the company's premises and on the land a little outside the premises. The Shahabad Municipal Committee was to take over possession of the remaining pipelines, installations and accessories and it was declared to be the owner thereof. These pipelines, installations, etc., had to be maintained by the Municipal Committee in future. Under clause 23, in consideration of the assessee-company having agreed to provide these amenities, supply and services, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company that the entire amount of Rs. 2,09,459 pertained to expenditure on pipelines, installations and other accessories which, under the agreement, came to the ownership of the Shahabad Town Municipality and did not pertain to any increase of the assets of the company. The Division Bench which decided the reference has pointed out that it had not been disputed by the Revenue before the Tribunal that the entire expenditure concerned was laid out for the purpose of business and the only question was whether it was capital expenditure or revenue expenditure. The only ground on which the claim of the assessee for deduction of the said expenditure under section 10(2)(xv) of the Indian Income-tax Act was resisted was that it was capital expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during benefit of the trade. If, on the other hand, what is got rid of by lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. The Division Bench also took into account the fact that the assessee was already running a cement factory at Shahabad and that it was not as if the expenditure incurred was in connection with the starting of a new business. Mr. Manchanda, learned counsel for the appellant, has raised only two contentions before us. The first contention was that, since, as result of the expenditure incurred, certain water pipeli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n if incurred for obtaining an advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principles laid down in this test. 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. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more effectively or more profitably while leaving the fixed capital untouched, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the facts of the case before us, what we find is that the advantage which was secured by the assessee by making the expenditure in question was the securing of absolution or immunity from liability to pay municipal rates and taxes under normal conditions for a period of fifteen years. If these liabilities had to be paid, the payments would have been on revenue account and hence the advantage secured was in the field of revenue and not capital. As a result of the expenditure incurred, there was no addition to the capital assets of the assessee-company and no change in its capital structure. The pipelines, etc., which might have been regarded as capital assets and which came into existence as a result of the expenditure incurred did not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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