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TMI Blog1967 (9) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... , made between the Government and the assessee under the terms whereof : (1) the sum of Rs. 39,770 was to be spent for the improvement of the approach road and not for usual repairs ; (2) in consideration of the sum being advanced by the assessee, Government would undertake to keep the said road in proper repairs. The assessee paid the said amount to the Government and in its return of income, for the assessment year 1956-57 (the relevant previous year being the year ending on March 31, 1956), claimed the amount as expenditure deductible under section 10(2)(xv) of the Indian Income-tax Act. The Income-tax Officer treated the expenditure as capital expenditure and disallowed the claim for deduction. On appeal by the assessee, the order of the Income-tax Officer, in this respect, was affirmed by the Appellate Assistant Commissioner. Thereupon, the assessee preferred a second appeal before the Appellate Tribunal, which allowed the appeal with the following observation : "In our opinion, the expenditure cannot be a capital expenditure. The assessee, as we have stated above, was not the owner of the road and the improvement which was being made was being done by the Government. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense within the meaning of section 10(2)(xv) of the Indian Income-tax Act, 1922 ?" The distinction between revenue expenditure and expenditure on capital is often very thin and difficult of decision. In this reference, this difficulty has been exploited with very great ability by the learned counsel for the parties. Mr. D. Gupta, learned counsel for the revenue, submitted that the Tribunal went wrong in thinking that because the approach road belonged to the Government and by improvement of the road no capital asset of enduring benefit accrued to the assessee, the expenditure cannot be a capital expenditure. According to him, the improvement of the road resulted in an advantage of enduring benefit to the assessee, inasmuch as it solved the transportation difficulties of the assessee, and as such the expenditure should be treated as capital expenditure. It was not necessary, according to Mr. Gupta, that the expenditure must bring into existence a capital asset to the assessee ; if the expenditure brought into existence a capital advantage of enduring benefit to the assessee, he submitted, the expenditure should be capital expenditure. In support of this submission, be relied upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on a bold step, namely, that they would construct a line of railway for themselves between the Lothians coal-field and Leith and so render themselves independent of the railway company altogether. Accordingly, the traders promoted two private Bills to attain that object. Both the Bills were thrown out, but the money expended upon them was not thrown away ; it attained its end and the menace was sufficient and successful. The railway company, according to the assessee, were brought to their senses and the immediate result of this legislative misadvanture was to secure for the traders, all the railway facilities which they desired. The railway company promised, in consequence of this menace, to construct a new line from the Lothians coal-field to Leith, to be dedicated to mineral goods traffic only and to give the traders an unlimited right to place their own wagons on that line. Since this triumph was, according to the appellants, honestly bought and paid for, the question arose whether the sum spent in promotion of the two abortive Bills were to be treated as capital expenditure or allowable as expenditure out of revenue. In holding that the expenditure was capital expenditure, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction. The track was laid down in 1896-97 and was maintained in the ordinary way, but in 1929, the track was in a worn and dangerous state requiring heavy repairs beyond what could be dealt in the ordinary way, and in 1930, new rails had to be put in over a large part of the track and new sleepers, which did no more than bring the track back to normal condition but did not render the line capable of giving more service. Question arose whether the outgoing was of a capital nature and whether the work was one of reconstruction and not of repair. In answering the question, Lord Macmillan observed : "..... the sum in question was within the meaning of paragraph (a) an outgoing 'not of capital nature' and was 'expended for the repairs of property occupied for the purpose of trade or in respect of which income is receivable' within the meaning of paragraph (b) . . . .' "Repair" and "renew" are not words expressive of a clear contrast' and 'Repair is restoration by renewal or replacement of subsidiary parts of a whole. Renewal as distinguished from repair, is reconstruction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole subject-matter und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly distinguishable. That was a case in which the assessee was trying to bring into existence new capital assets, namely, a fresh line of railway for the purpose of reaching the customers and the money was going to be spent "once and for all" on that account. The two abortive private Bills were promoted to that end in view. In the instant case, the facts are entirely different. The two cases relied on by the learned counsel for the assessee, namely, Rhodesia Railways Ltd.'s case and Dumbarton Harbour Board's case are also distinguishable cases. In those cases, money was being spent to improve the own property of the assessee. Here, in this case, the approach road did not belong to the assessee but to the Government. Over it, the assessee had and did always have the right of way, as much as so many others had. The duty of keeping the roads passable was upon the Government. By governmental neglect, the road fell into a state of disrepair and was causing inconvenience to the assessee and also to so many other passersby. The Government could not be induced to take up the improvement of the road without a necessary monetary contribution by the assessee. This inducement the assessee offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Government to perform its obvious duty of keeping communication lines in reasonable state of repair and save trouble for itself, in the carriage of its own business. Mr. Gupta lastly contended that the right of way over a road was itself a property or an asset and the moneys spent for bringing improvement of such a road was money spent to bring about an improvement in capital asset. He could not convince us that the right of way over a public road was such a jura in re alieana as constitute a property. We do not, therefore, make much of this argument. Before we close, we need dispose of another argument of Mr. Ghosh. He submitted that even if by capital expenditure an asset need not be brought into existence and it would suffice if a capital advantage only came into being, such an advantage must be in the nature of a right, incorporeal though it may be. This contention was negatived by the Supreme Court in the case of Sitalpur Sugar Mills Ltd. v. Commissioner of Income-tax in the following language : "Mr. Pathak did not question the authority of the test laid down in Atherton's case but said that that test had no application in the present case as it would not apply unless b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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