9911796707
TMI Blog1971 (8) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is known as South Samla Colliery. South Samla Colliery was under military occupation since 1942 and was derequisitioned in 1955. This colliery could not be worked by the assessee during these years of military occupation. Expenses, however, had been claimed by the assessee during the period of military occupation on account of minimum royalty, surface rent and salary for watch and ward purposes of this colliery and had been allowed as business expenditure of the assessee by the taxing authority. The relevant assessment year is 1959-60, the corresponding previous year, i.e., the accounting year of the assessee being the Gujarati Dewali 2014 (beginning with 24th of October, 1957, and ending on 12th of November, 1958). During the relevant period under consideration, the assessee incurred certain heavy expenses amounting in all to Rs. 1,61,742 on renovating the buildings, reconditioning the machinery and clearing the land of the debris that had accumulated for over a number of years at the said South Samla Colliery for the purpose of putting the machinery in working order as well as the whole of that colliery in general to a state of resumption of mining operations from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this amount ". A further appeal was prepared by the assessee to the Income-tax Appellate Tribunal and the Tribunal dismissed the appeal of the assessee. The Tribunal held in its order dated the 25th of February, 1964 : " The next contention in the appeal is directed against the disallowance of expenses in the accounts of the South Samla Colliery. The details of the expenditure disallowed have been given in the orders of the Income-tax Officer for the relevant years. We agree with the income-tax authorities that the expenditures incurred were capital in nature as the colliery was not working in the relevant years. " The Tribunal having refused to state a case, the assessee moved this court. Directed by this court the Tribunal had referred under section 66(2) of the Indian Income-tax Act, 1922, the following question of law : " Whether, in the facts and the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the expenditure claimed by South Samla Colliery at Rs. 1,61,742 was capital in nature ? " Mr. Banerjee, the learned counsel appearing on behalf of the assessee, has submitted that on the basis of the findings of the Income-tax Officer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el has argued that as a result of the expenditure no new asset has been acquired by the assessee and there is no such finding by the Income-tax Officer. The learned counsel submits that it also cannot be said that as a result of the expenditure incurred on renovating the buildings, reconditioning the machinery and clearing the land of the debris, the assessee had acquired any advantage or right of any enduring nature. The whole object of the expenditure, says the learned counsel, was to enable the assessee to carry on the asscssee's concern which was in existence by restarting operation of digging coal therefrom and the expenditure was not incurred to acquire any concern not already in existence. The learned counsel contends that any expenditure incurred for restarting production or manufacture, which might have remained suspended for a length of time for some reason or other, should usually never be considered to be capital in nature, unless there is something to suggest to the contrary in the very nature of expenditure incurred. The learned counsel points out that in this case the expenditure was incurred for renovating the buildings, re-conditioning the machinery and removing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n question to be of capital nature. He has argued that the Income-tax Officer has found that this colliery was under military occupation since 1942 and was derequisitioned in 1955 and that after the colliery was handed over to the assessee, the various items of expenditure had to be incurred by it for purposes of putting the machineries in working order and bringing the colliery in general to a state when the assessee could start digging out coal. It is his argument that, as a result of not working the colliery for such a length of time, the asset had become a dead asset. The expenditure incurred by the assessee, according to Mr. Pal, in reviving or restoring the dead asset to life and to its working condition, is really in the nature of preliminary or initial expense for setting up the said business, and, in any event, the said expenditure must be considered to have been incurred for the development of the business. Mr. Pal has argued that the said expenditure has indeed the effect of acquisition of new capital asset and results in an enduring advantage or benefit to the company. Mr. Pal submits that in the present case, the assessee could not carry on any business with Samla Coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t seems to me inevitable that the sum must be treated as a capital expenditure and not as a revenue expenditure. " Mr. Pal has also referred to a number of decisions and has mainly relied on the following cases : United Collieries Ltd. v. Commissioners of Inland Revenue, Hyam v. Commissioners of Inland Revenue, Jackson v. Laskers Home Furnishers Ltd., Tata Hydro-Electric Agencies Ltd. v. Commissioner of Income-tax, Jansatta Karyalaya v. Commissioner of Income-tax, Sitalpur Sugar Works Ltd. v. Commissioner of Income-tax and Humayun Properties Ltd. v. Commissioner of Income-tax. We do not consider it necessary to deal with the large number of cases cited from the Bar. Whether any particular expenditure is revenue or capital must necessarily depend on the facts of each particular case. Decisions in cases arising out of different facts are of no material assistance in deciding the question involved in the present proceeding. In the case of Regent Oil Co. Ltd. v. Strick, Lord Reid at pages 312-313 aptly observes : " Whether a particular outlay by a trader can be set against income or must be regarded as a capital outlay has proved to be a difficult question. It may be possible to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court for consideration. In determining the question the Supreme Court considered a number of decisions, both of the English courts and of Indian courts, and observed : " In Banarsidas Jagannath, In re a Full Bench of the Lahore High Court attempted to reconcile all these decisions and deduced the following broad tests for distinguishing capital expenditure from revenue expenditure. The opinion of the Full Bench was delivered by Mr. Justice Mahajan, as he then was, in the terms following : 'It is not easy to define the term " capital expenditure " in the abstract or to lay down any general and satisfactory test to discriminate between a capital and a revenue expenditure. Nor is it easy to reconcile all the decisions that were cited before us for each case has been decided on its peculiar facts. Some broad principles can however, be deduced from what the learned judges have laid down from time to time. They are as follows : 1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment : vide Lord Sands in Commissioners of Inland Revenue v. Granite City Steamship Co. In City of L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital 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 paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eries during the said period. (v) During the period the said South Samla Colliery remained under military occupation, the assessee incurred expenditure for payment of surface rent and minimum royalty in respect of the said colliery and also on account of salary for staff employed in the said colliery for watch and ward purposes. (vi) Such expenses incurred by the assessee in respect of the said South Samla Colliery during the period of military occupation thereof, when there could be no working of the said colliery by raising coal therefrom, had been claimed and allowed as business expenditure of the assessee. (vii) After the said colliery was handed over to the assessee upon de-requisition, the assessee during the relevant period incurred an expenditure of Rs. 1,61,742 for the purpose of renovating the buildings, reconditioning the machinery and clearing the land of the debris, accumulated over a number of years. (viii) The said expenditure of Rs. 1,61,742 incurred by the assessee consisted of the amount of Rs. 66,937 spent on account of salaries and wages including labour benefit, etc., and of the other amount of Rs. 94,805 spent on purchases of various stores, machinery repa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income-tax and also in the case of L. Ve. Vairavan Chettiar v. Commissioner of Income-tax make this position abundantly clear. We may further observe that, in the present case, the revenue authority had allowed various expenses incurred by the assessee in respect of South Samla Colliery itself. This could only have been done on the footing that the assessee was carrying on its business also in South Samla Colliery. It may also be noted that the expenditure in question has been disallowed only on the ground that it is capital expenditure and not on any other ground. This finding also clearly presupposes that the expenditure in question has been wholly and exclusively laid out for the purpose of the business of the assessee. The only question is whether the expenditure is question is revenue expenditure or capital expenditure. It is clear from the facts found in the instant case that no new or fresh asset has been acquired by the assessee with the expenditure in question. The finding is that the expenditure in question was incurred for renovating the buildings, reconditioning the machinery and for removing the debris and the further finding is that out of the total expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the contrary and they clearly establish that the buildings had only been renovated and the machinery merely reconditioned. The finding of the Income-tax Officer that the expenditure was necessarily to be incurred before the actual working of the coal fields " for purposes of putting the machinery in working order and bringing the colliery in general to a state when the assessee could start digging out coal " does not warrant the conclusion that the assets were all dead assets which were lost to the company. In the absence of any such finding, it will not be proper for us to come to any such conclusion on a question of fact in this reference. Incurring an expenditure on preservation of any asset threatened with extinction, does not result in acquisition of any new assets and does not necessarily become capital expenditure. In the case of Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax, the Supreme Court observed at page 213 : " Under section 10(2)(xv) of the Indian Income-tax Act, as amended by Act 7 of 1939, expenditure even though not directly related to the earning of income may still be admissible as a deduction. Expenditure on civil litigation commenced or carried o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red. In our opinion, that is not the position in law and in fact and we are unable to accept Mr. Pal's contention. The mere fact that any asset or machinery had not been used for a long time and had remained in an unworkable condition for a length of time, does not by itself necessarily establish that the machine or the asset was completely lost. The expenditure in question cannot, in our opinion, be said to have resulted in any enduring or permanent benefit for the assessee. The expenditure in question, as already noted, was on renovation of the buildings, in reconditioning the machinery and for removal of the debris. Such expenditure in the normal course of business of the assessee will have to be incurred again and again from time to time, sooner or later. There is nothing to suggest in the facts of the instant case that as a result of the renovation of the buildings, any new or additional amenity or facility, not already in existence was obtained. Repairs and renovation of buildings will have to be done from time to time, as and when necessary, because of natural decay with passage of time. Reconditioning any machinery in the usual course of business, normally cannot be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance its day-to-day transactions, and more efficiently to carry on its day-to-day manufacture'. " We have already noticed that by this expenditure, no new asset was created. The expenditure was also not incurred to open new fields of trading. The expenditure was incurred for the purpose of digging coal from a colliery already in existence owned by the assessee in its business, but not worked for some time, by removing the impediments to the working of the same to facilitate the existing trade of the company. The expenditure in question on labour, purchase of various stores, machinery repairs and Dhowrah repairs, etc., for renovating existing buildings, re-conditioning machinery and removal of debris accumulated in the said colliery for working the said mine, was incurred for carrying on the assessee's existing concern and not for acquisition of any concern and was really in the nature of a change in its business method to enable the assessee to carry on more effectively its day-to-day manufacture, leaving its fixed capital untouched. The said expenditure cannot be considered to be capital expenditure merely on the ground that the amount involved is large. Largeness or smallness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... namely, South Samla Colliery. The expenditure in question in the assessee's existing business or one of its existing sources or units of production of coal for the purpose of re-starting the operation of digging coal therefrom, cannot, in our opinion, be considered to be an expenditure for setting up or development of the assessee's business, as contended for by Mr. Pal. The decision of the Supreme Court in the case of Sitalpur Sugar Works Ltd. v. Commissioner of Income-tax, relied on by Mr. Pal, is not of any help in the facts of the present case. In that case the question was whether the expenditure incurred in dismantling and refitting existing plant at a better site is capital expenditure or revenue expenditure and the Supreme Court naturally held such expenditure to be capital expenditure. Sarkar J., who delivered the judgment of the court, observed, at page 162 : " It really went towards effecting a permanent improvement in the profit-making machinery, that is, in the capital assets. it was, therefore, a capital expenditure and not a revenue expenditure. " The decision of the Supreme Court in the case of Commissioner of Income-tax v. Amalgamated Development Ltd. indicates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for some reason has become unworkable or has not been worked for some time, such expenditure invariably and always becomes capital expenditure. Suppose, a person in his business has three units or factories for production of a particular commodity. For business reasons, say, due to lack of demand in the market of that commodity or for scarcity of raw materials, he does not operate or is unable to operate all the three units or factories and works only two of them, closing the other for the time being. With improvement in market conditions after some time or with availability of raw materials, the person resumes operation of the closed unit and for the purpose of re-starting operation of the unit which had remained closed, the businessman incurs in oiling and cleaning the machine and removing any accumulation of filth and dirt in the unit or factory premises, an expenditure without which it would not be possible to re-start operation of the said unit or factory. Can such expenditure be said to be in the nature of capital expenditure ? In our opinion, it cannot be, and must be considered to be revenue expenditure. Let us consider another example. Suppose, the labourers in a factory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Officer of Bombay as it had its principal place of business at Bombay. In that year the principal place of business was changed to Madras and the duty of assessing the company to income-tax for 1930-31 fell to the Income-tax Officer in Madras. In 1928-29 the Bombay Income-tax Officer allowed the sum of Rs. 5,420 being the loss of the mica business at Nellore against the profits of the company's other business. When the assessment for the year 1930-31 was taken up the Madras Income-tax Officer took action under section 34 of the Income-tax Act and assessed the company for a total income of Rs. 18,932 disallowing the sum of Rs. 5,420 on the ground that the loss was of a capital nature and not loss incurred in the course of business as the company did not do any business in the year of account. " The matter ultimately went to the High Court in a reference and the question referred was : " Where an assessee carrying on a mica business is obliged to stop it on account of a cyclone but still incurs expenditure during the year of account with the intention of resuming the same if conditions and prospects proved favourable, but the business in fact was never resumed, is the expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure, as stowing was an operation necessary to be carried out in the process of the extraction of coal and unless it is carried out extraction was not possible irrespective of the fact whether depillaring had been done or not. The said expenditure on stowing operation was held to be a revenue expenditure, as the operation of stowing was necessary for the purpose of extraction of coal. Judged in a business sense from the view-point of a businessman, the expenditure in question was incurred by the assessee for the purpose of the assessee's concern already in existence, for the purpose of carrying on the same and not for acquiring any concern not in existence. To quote the words of Bowen L.J. in City of London Contract Corporation v. Styles : " You do not use it 'for the purpose of ' your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern. " The expenditure in the acquisition of the concern would be capital expenditure ; the expenditure in carrying on the concern would be revenue expenditure. The aim and object of the expenditure were not to acquire any new asset, but to carry on the assessee's existing concern by workin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under military occupation, is in the nature of capital expenditure or not. The assessee is a registered firm which owned several collieries in West Bengal and Bihar. One of such collieries owned by the assessee is known as South Samla Colliery. South Samla Colliery was under military occupation since 1942 and was derequisitioned in 1955. This colliery could not be worked by the assessee during these years of military occupation. Expenses, however, had been claimed by the assessee during the period of military occupation on account of minimum royalty, surface rent and salary for watch and ward purposes of this colliery and had been allowed as business expenditure of the assessee by the taxing authority. The relevant assessment year is 1959-60, the corresponding previous year, i.e., the accounting year of the assessee being the Gujarati Dewali 2014 (beginning with 24th of October, 1957, and ending on 12th of November, 1958). During the relevant period under consideration, the assessee incurred certain heavy expenses amounting in all to Rs. 1,61,742 on renovating the buildings, reconditioning the machinery and clearing the land of the debris that had accumulated for over a number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner by his order dated 20th of July, 1962, confirmed the order of the Income-tax Officer observing that Mr. Chowdhury appearing for the assessee " did not seriously dispute the disallowance of this amount ". A further appeal was prepared by the assessee to the Income-tax Appellate Tribunal and the Tribunal dismissed the appeal of the assessee. The Tribunal held in its order dated the 25th of February, 1964 : " The next contention in the appeal is directed against the disallowance of expenses in the accounts of the South Samla Colliery. The details of the expenditure disallowed have been given in the orders of the Income-tax Officer for the relevant years. We agree with the income-tax authorities that the expenditures incurred were capital in nature as the colliery was not working in the relevant years. " The Tribunal having refused to state a case, the assessee moved this court. Directed by this court the Tribunal had referred under section 66(2) of the Indian Income-tax Act, 1922, the following question of law : " Whether, in the facts and the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the expenditure claimed by South Saml ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel, is recognised by the Income-tax Officer and clearly established by the fact that the Income-tax Officer allowed various other expenses incurred in connection with that colliery. The learned counsel has argued that as a result of the expenditure no new asset has been acquired by the assessee and there is no such finding by the Income-tax Officer. The learned counsel submits that it also cannot be said that as a result of the expenditure incurred on renovating the buildings, reconditioning the machinery and clearing the land of the debris, the assessee had acquired any advantage or right of any enduring nature. The whole object of the expenditure, says the learned counsel, was to enable the assessee to carry on the asscssee's concern which was in existence by restarting operation of digging coal therefrom and the expenditure was not incurred to acquire any concern not already in existence. The learned counsel contends that any expenditure incurred for restarting production or manufacture, which might have remained suspended for a length of time for some reason or other, should usually never be considered to be capital in nature, unless there is something to suggest to the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. Mr. Pal, learned counsel appearing on behalf of the department has submitted that in the facts of the instant case the taxing authorities and the Tribunal have correctly held the expenditure in question to be of capital nature. He has argued that the Income-tax Officer has found that this colliery was under military occupation since 1942 and was derequisitioned in 1955 and that after the colliery was handed over to the assessee, the various items of expenditure had to be incurred by it for purposes of putting the machineries in working order and bringing the colliery in general to a state when the assessee could start digging out coal. It is his argument that, as a result of not working the colliery for such a length of time, the asset had become a dead asset. The expenditure incurred by the assessee, according to Mr. Pal, in reviving or restoring the dead asset to life and to its working condition, is really in the nature of preliminary or initial expense for setting up the said business, and, in any event, the said expenditure must be considered to have been incurred for the development of the business. Mr. Pal has argued that the said expenditure has indeed the effect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a non-profit-earning condition. The expenditure which the appellants ask to be deducted was incurred in restoring it to, and not in keeping it in, a profit-earning condition. In these circumstances, it seems to me inevitable that the sum must be treated as a capital expenditure and not as a revenue expenditure. " Mr. Pal has also referred to a number of decisions and has mainly relied on the following cases : United Collieries Ltd. v. Commissioners of Inland Revenue, Hyam v. Commissioners of Inland Revenue, Jackson v. Laskers Home Furnishers Ltd., Tata Hydro-Electric Agencies Ltd. v. Commissioner of Income-tax, Jansatta Karyalaya v. Commissioner of Income-tax, Sitalpur Sugar Works Ltd. v. Commissioner of Income-tax and Humayun Properties Ltd. v. Commissioner of Income-tax. We do not consider it necessary to deal with the large number of cases cited from the Bar. Whether any particular expenditure is revenue or capital must necessarily depend on the facts of each particular case. Decisions in cases arising out of different facts are of no material assistance in deciding the question involved in the present proceeding. In the case of Regent Oil Co. Ltd. v. Strick, Lord Reid at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Coal Co. In the case of Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax, the question whether a particular expenditure was revenue expenditure or of capital nature came up before the Supreme Court for consideration. In determining the question the Supreme Court considered a number of decisions, both of the English courts and of Indian courts, and observed : " In Banarsidas Jagannath, In re a Full Bench of the Lahore High Court attempted to reconcile all these decisions and deduced the following broad tests for distinguishing capital expenditure from revenue expenditure. The opinion of the Full Bench was delivered by Mr. Justice Mahajan, as he then was, in the terms following : 'It is not easy to define the term " capital expenditure " in the abstract or to lay down any general and satisfactory test to discriminate between a capital and a revenue expenditure. Nor is it easy to reconcile all the decisions that were cited before us for each case has been decided on its peculiar facts. Some broad principles can however, be deduced from what the learned judges have laid down from time to time. They are as follows : 1. Outlay is deemed to be capital when it is made for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under military occupation, the assessee did not, as he possibly could not, work the said colliery. (iv) The assessee was, however, carrying on his business in coal and was working some other collieries during the said period. (v) During the period the said South Samla Colliery remained under military occupation, the assessee incurred expenditure for payment of surface rent and minimum royalty in respect of the said colliery and also on account of salary for staff employed in the said colliery for watch and ward purposes. (vi) Such expenses incurred by the assessee in respect of the said South Samla Colliery during the period of military occupation thereof, when there could be no working of the said colliery by raising coal therefrom, had been claimed and allowed as business expenditure of the assessee. (vii) After the said colliery was handed over to the assessee upon de-requisition, the assessee during the relevant period incurred an expenditure of Rs. 1,61,742 for the purpose of renovating the buildings, reconditioning the machinery and clearing the land of the debris, accumulated over a number of years. (viii) The said expenditure of Rs. 1,61,742 incurred by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the expression in which actual operation, buying and selling and other incidents to business in the popular sense may be implied. The decisions in the case of General Corporation Ltd. v. Commissioner of Income-tax and also in the case of L. Ve. Vairavan Chettiar v. Commissioner of Income-tax make this position abundantly clear. We may further observe that, in the present case, the revenue authority had allowed various expenses incurred by the assessee in respect of South Samla Colliery itself. This could only have been done on the footing that the assessee was carrying on its business also in South Samla Colliery. It may also be noted that the expenditure in question has been disallowed only on the ground that it is capital expenditure and not on any other ground. This finding also clearly presupposes that the expenditure in question has been wholly and exclusively laid out for the purpose of the business of the assessee. The only question is whether the expenditure is question is revenue expenditure or capital expenditure. It is clear from the facts found in the instant case that no new or fresh asset has been acquired by the assessee with the expenditure in question. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the amount spent is large does not by itself show that the assets were dead assets or were lost to the company. On the other hand, the facts found, to which we have earlier referred, point to the contrary and they clearly establish that the buildings had only been renovated and the machinery merely reconditioned. The finding of the Income-tax Officer that the expenditure was necessarily to be incurred before the actual working of the coal fields " for purposes of putting the machinery in working order and bringing the colliery in general to a state when the assessee could start digging out coal " does not warrant the conclusion that the assets were all dead assets which were lost to the company. In the absence of any such finding, it will not be proper for us to come to any such conclusion on a question of fact in this reference. Incurring an expenditure on preservation of any asset threatened with extinction, does not result in acquisition of any new assets and does not necessarily become capital expenditure. In the case of Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax, the Supreme Court observed at page 213 : " Under section 10(2)(xv) of the Indian Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airs thereto. As soon as the machine is restored back to its working condition from the unworkable condition, it will have to be held, if Mr. Pal's contention is sound, that a new asset has been acquired. In our opinion, that is not the position in law and in fact and we are unable to accept Mr. Pal's contention. The mere fact that any asset or machinery had not been used for a long time and had remained in an unworkable condition for a length of time, does not by itself necessarily establish that the machine or the asset was completely lost. The expenditure in question cannot, in our opinion, be said to have resulted in any enduring or permanent benefit for the assessee. The expenditure in question, as already noted, was on renovation of the buildings, in reconditioning the machinery and for removal of the debris. Such expenditure in the normal course of business of the assessee will have to be incurred again and again from time to time, sooner or later. There is nothing to suggest in the facts of the instant case that as a result of the renovation of the buildings, any new or additional amenity or facility, not already in existence was obtained. Repairs and renovation of buildin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ganisation, leaving its fixed capital untouched'. As the Lord President put in the present case : 'The benefit was essentially of a revenue character because the company became able more easily to finance its day-to-day transactions, and more efficiently to carry on its day-to-day manufacture'. " We have already noticed that by this expenditure, no new asset was created. The expenditure was also not incurred to open new fields of trading. The expenditure was incurred for the purpose of digging coal from a colliery already in existence owned by the assessee in its business, but not worked for some time, by removing the impediments to the working of the same to facilitate the existing trade of the company. The expenditure in question on labour, purchase of various stores, machinery repairs and Dhowrah repairs, etc., for renovating existing buildings, re-conditioning machinery and removal of debris accumulated in the said colliery for working the said mine, was incurred for carrying on the assessee's existing concern and not for acquisition of any concern and was really in the nature of a change in its business method to enable the assessee to carry on more effectively its day-to-da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and for removing the impediments or obstacles to the carrying on of the assessee's existing concern for the purpose of re-starting the operation of digging coal from one of the existing units, namely, South Samla Colliery. The expenditure in question in the assessee's existing business or one of its existing sources or units of production of coal for the purpose of re-starting the operation of digging coal therefrom, cannot, in our opinion, be considered to be an expenditure for setting up or development of the assessee's business, as contended for by Mr. Pal. The decision of the Supreme Court in the case of Sitalpur Sugar Works Ltd. v. Commissioner of Income-tax, relied on by Mr. Pal, is not of any help in the facts of the present case. In that case the question was whether the expenditure incurred in dismantling and refitting existing plant at a better site is capital expenditure or revenue expenditure and the Supreme Court naturally held such expenditure to be capital expenditure. Sarkar J., who delivered the judgment of the court, observed, at page 162 : " It really went towards effecting a permanent improvement in the profit-making machinery, that is, in the capital a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n relied on by Mr. Pal, in our opinion, do not lay down and are not intended to lay down any general proposition that whenever any expenditure is incurred in putting into working order an asset which for some reason has become unworkable or has not been worked for some time, such expenditure invariably and always becomes capital expenditure. Suppose, a person in his business has three units or factories for production of a particular commodity. For business reasons, say, due to lack of demand in the market of that commodity or for scarcity of raw materials, he does not operate or is unable to operate all the three units or factories and works only two of them, closing the other for the time being. With improvement in market conditions after some time or with availability of raw materials, the person resumes operation of the closed unit and for the purpose of re-starting operation of the unit which had remained closed, the businessman incurs in oiling and cleaning the machine and removing any accumulation of filth and dirt in the unit or factory premises, an expenditure without which it would not be possible to re-start operation of the said unit or factory. Can such expenditure be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of salary, wages, legal expenses, depreciation, etc. It may be mentioned here that production was not resumed by the company. Till 1930-31 the company was assessed to income-tax by the Income-tax Officer of Bombay as it had its principal place of business at Bombay. In that year the principal place of business was changed to Madras and the duty of assessing the company to income-tax for 1930-31 fell to the Income-tax Officer in Madras. In 1928-29 the Bombay Income-tax Officer allowed the sum of Rs. 5,420 being the loss of the mica business at Nellore against the profits of the company's other business. When the assessment for the year 1930-31 was taken up the Madras Income-tax Officer took action under section 34 of the Income-tax Act and assessed the company for a total income of Rs. 18,932 disallowing the sum of Rs. 5,420 on the ground that the loss was of a capital nature and not loss incurred in the course of business as the company did not do any business in the year of account. " The matter ultimately went to the High Court in a reference and the question referred was : " Where an assessee carrying on a mica business is obliged to stop it on account of a cyclone bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Commissioner of Income-tax v. Kirkend Coal Co., the Supreme Court held that the expenditure on stowing operation incurred by the assessee which carried on the business of coal mining, was a revenue expenditure, as stowing was an operation necessary to be carried out in the process of the extraction of coal and unless it is carried out extraction was not possible irrespective of the fact whether depillaring had been done or not. The said expenditure on stowing operation was held to be a revenue expenditure, as the operation of stowing was necessary for the purpose of extraction of coal. Judged in a business sense from the view-point of a businessman, the expenditure in question was incurred by the assessee for the purpose of the assessee's concern already in existence, for the purpose of carrying on the same and not for acquiring any concern not in existence. To quote the words of Bowen L.J. in City of London Contract Corporation v. Styles : " You do not use it 'for the purpose of ' your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern. " The expenditure in the acquisition of the concern would be capital expenditure ; the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
