TMI Blog1977 (1) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... w road in the area where its factory is located to improve transport facilities is capital expenditure or revenue expenditure. The assessment year in question is 1964-65, the relevant accounting period being the financial year ended March 31, 1964. The assessee-company is engaged in the manufacture of chemicals ; it had been receiving and despatching materials required for and produced in its factory through lorries. The assessee along with three other public undertakings approached the Government of Kerala for laying a new road from Kalamasseri to Udyogamandal ; this area where the assessee's factory is situate was not at the material time served by pucca roads. It was agreed that the Government of Kerala would bear the cost of the acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. In this appeal, brought on a certificate under section 261 of the Income-tax Act, 1961, the assessee challenges the correctness of the answer given by the High Court to the question. The authorities both in this country and in England have pointed out the difficulties in formulating precise rules for distinguishing capital expenditure from revenue expenditure. The line of demarcation has been found to be very thin. Certain broad tests have, however, been laid down, and of them the test suggested by Viscount Cave L.C. in Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155 (HL) appears to have been largely accepted in this country. This court in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax [1955] 27 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce 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 expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. If it was part of the fixed capital of the business it would be of the nature of capital expenditure and if it was part of its circulating capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be revenue expenditure and not expenditure of a capital nature. In Lakshmiji Sugar Mills' case. [1971] 82 ITR 376 (SC) the assessee was a private limited company carrying on the business of manufacture and sale of sugar. Under the provisions of the U. P. Sugarcane Regulation of Supply and Purchase Act, 1953, the assessee-company was obliged to contribute certain amounts for the development of roads which were originally the property of the Government and remained so even after the improvement had been made. Apart from the fact that in this case the expenditure incurred under a statutory compulsion, there was no finding that the roads were newly made. On the facts of that case this court was satisfied that the development of the roads wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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