TMI Blog1971 (8) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... ings, reconditioning the machinery and clearing the land of debris in one of its collieries, known as South Samla Colliery, for restarting the operation of digging coal therefrom, after a long lapse of time, during which period this colliery had remained 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrah repairs, etc., amounting to Rs. 94,805 which in all Rs. 1,61,742 will be disallowed as capital expenditure. " The assessee filed an appeal before the Appellate Assistant Commissioner against the order of the Income-tax Officer. The Appellate Assistant Commissioner 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness in the South Samla Colliery within the meaning of section 10(2)(xv), it is not necessary that the process of digging out coal must actually be in operation. That the assessee was carrying on the business of the South Samla Colliery, submits the learned counsel, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x v. Mahalakshmi Textile Mills Ltd., Commissioner of Income-tax v. Mysore Sugar Co. Ltd., Commissioner of Income-tax v. Harish Chander Jagnnath Prasad, Mohanlal Hargovind of Jubbulpore : v. Commissioner of Income-tax and Commissioners of Inland Revenue v. Carron Company. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax is levied as would arise from the fact that it was incurred for the purpose of keeping the profit-yielding subject in a profit-yielding condition during the year in which the tax was incurred. This is not what happened here. The lower seam was allowed to get into 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 cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure. " The aforesaid observations were also quoted by the Supreme Court in the case of Commissioner of Income-tax v. Kirkend 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit or loss. Fixed capital, on the other hand, is not involved directly in that process and remains unaffected by it.' This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the principles which emerge from the authorities. In cases where the expenditure 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all material times carried on business in coal as owners of various collieries. (ii) South Samla Colliery, one of the collieries owned by the assessee, was under military occupation since 1942 and was derequisitioned in 1955. (iii) During the period the said South Samla Colliery remained 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owners of various coal mines, including the South Samla Colliery, although the said colliery was not being actually worked. The concept of carrying on business within the meaning of section 10(2)(xv) of the Income-tax Act is a legal concept and may not necessarily be in accord with the popular concept 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture in question. Their is no evidence to show when the building was constructed, when it was last repaired or renovated and what was its condition at the time of requisition or derequisition. Similarly, there is no evidence with regard to the nature, age, condition, kind and make of the machinery. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commence or for carrying on of a business.' " Any machine which goes out of order at any time becomes in a sense temporarily dead or lost in its capacity to work. It remains in such condition so long as it is not restored back to its working condition by reconditioning the same by effecting necessary repairs 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional trading operations under modern conditions. None of the authorities cited is directly in point, and I think that the most apposite general statement in those authorities is that of Lawrence L.J. in Anglo-Persian Oil Co. Ltd. v. Dale. It 'merely effected a change in its business methods and internal organisation, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hinery and expenditure for such purposes must have been incurred long before. There was, therefore, no question of incurring any initial expenditure for setting up any business, nor was there any question of development thereof. The expenditure in question was incurred for preserving the existing assets of the 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 cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even of extensive pumping incurred in the course of mining operations may be a revenue charge and properly charged against revenue. The reason why I reach my conclusion is because of the way in which the Commissioners in these findings have dealt with the subject-matter of the case." The observations of Lord Blackburn 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-starti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mica business. The mining business was started at Nellore in 1926. It was worked till November, 1927, when the production was stopped on account of cyclone. With a view to resume the production the company did some prospecting work and incurred an expenditure of Rs. 5,420 in 1928-29. This amount was made up of expenses on 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of its business for resuming the operation of digging coal. As expenditure which has to be incurred by an assessee in the course of its trade to enable the assessee to carry on its trading operation should usually be considered to be revenue expenditure when other necessary conditions are satisfied. In the case of 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 existen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature or not, may prove ticklish and intricate in the facts of a particular case. In the instant reference, such a question falls for determination. The point for consideration in the present reference is whether the expenditure incurred by the assessee on renovating the buildings, reconditioning the machinery and clearing the land of debris in one of its collieries, known as South Samla Colliery, for restarting the operation of digging coal therefrom, after a long lapse of time, during which period this colliery had remained 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 expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an enduring nature. " The Income-tax Officer further held : " The expenditure incurred by the assessee on account of salaries and wages including labour benefit, etc., amounting to Rs. 66,937 and the expenditure incurred for purchase of various stores, machine repairs, dhowrah repairs, etc., amounting to Rs. 94,805 which in all Rs. 1,61,742 will be disallowed as capital expenditure. " The assessee filed an appeal before the Appellate Assistant Commissioner against the order of the Income-tax Officer. The Appellate Assistant Commissioner 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 rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded. Mr. Banerjee comments that unless the business of South Samla Colliery was continuing, no allowance for any expenditure in connection with that colliery would or could have been allowed by the Income-tax Officer. Mr. Banerjee contends that for the purpose of carrying on business in the South Samla Colliery within the meaning of section 10(2)(xv), it is not necessary that the process of digging out coal must actually be in operation. That the assessee was carrying on the business of the South Samla Colliery, submits the learned counsel, 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income-tax and Excess Profits Tax v. Sri Ram Sugar Mills Ltd., Security Printers of India (P.) Ltd. v. Commissioner of Income-tax, Commissioner of Income-tax v. Amalgamated Development Ltd., Hanuman Motor Service v. Commissioner of Income-tax, Commissioner of Income-tax v. Mahalakshmi Textile Mills Ltd., Commissioner of Income-tax v. Mysore Sugar Co. Ltd., Commissioner of Income-tax v. Harish Chander Jagnnath Prasad, Mohanlal Hargovind of Jubbulpore : v. Commissioner of Income-tax and Commissioners of Inland Revenue v. Carron Company. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Ltd. v. Commissioners of Inland Revenue. " The question into which category any particular expense must fall is always one of degree, but it seems to me that any deduction to be allowed against revenue must bear some such relationship to the yearly profits on which the tax is levied as would arise from the fact that it was incurred for the purpose of keeping the profit-yielding subject in a profit-yielding condition during the year in which the tax was incurred. This is not what happened here. The lower seam was allowed to get into 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. Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure. " The aforesaid observations were also quoted by the Supreme Court in the case of Commissioner of Income-tax v. Kirkend 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is what the owner turns to profit by keeping it in his own possession. Circulating or floating capital is what he makes profit of by parting with it or letting it change masters. Circulating capital is capital which is turned over and in the process of being turned over yields profit or loss. Fixed capital, on the other hand, is not involved directly in that process and remains unaffected by it.' This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the principles which emerge from the authorities. In cases where the expenditure 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 expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application of the broad principles laid down above and the courts of law would not ordinarily interfere with such findings of fact if they have been arrived at on a proper application of those principles. " In the present case the established facts are- (i) The assessee at all material times carried on business in coal as owners of various collieries. (ii) South Samla Colliery, one of the collieries owned by the assessee, was under military occupation since 1942 and was derequisitioned in 1955. (iii) During the period the said South Samla Colliery remained 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on its business simply because some of its units of production are not in operation or one of its sources of supply has not been or cannot be worked for some reason or other. In the instant case, the assessee must be considered to have been carrying on its business in coal as owners of various coal mines, including the South Samla Colliery, although the said colliery was not being actually worked. The concept of carrying on business within the meaning of section 10(2)(xv) of the Income-tax Act is a legal concept and may not necessarily be in accord with the popular concept 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 Coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the company. The coal mine, the building and the machinery were all there. There is no material, apart from the aspect of long non-user, to suggest that any of the assets had become altogether dead or had been lost to the company and have been freshly acquired by the expenditure in question. Their is no evidence to show when the building was constructed, when it was last repaired or renovated and what was its condition at the time of requisition or derequisition. Similarly, there is no evidence with regard to the nature, age, condition, kind and make of the machinery. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hinery ; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title ; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business.' " Any machine which goes out of order at any time becomes in a sense temporarily dead or lost in its capacity to work. It remains in such condition so long as it is not restored back to its working condition by reconditioning the same by effecting necessary repairs 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It created no new asset. It did not even open new fields of trading which had previously been closed to the company. Its true purpose was to facilitate trading by enabling the company to engage a more competent manager and to borrow money required to finance the company's traditional trading operations under modern conditions. None of the authorities cited is directly in point, and I think that the most apposite general statement in those authorities is that of Lawrence L.J. in Anglo-Persian Oil Co. Ltd. v. Dale. It 'merely effected a change in its business methods and internal organisation, 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olliery and all the machinery and buildings were already in existence, though any production of coal from this unit had remained suspended for a length of time. There is no question of setting up any new colliery, or of constructing any new building or of installing any new machinery and expenditure for such purposes must have been incurred long before. There was, therefore, no question of incurring any initial expenditure for setting up any business, nor was there any question of development thereof. The expenditure in question was incurred for preserving the existing assets of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure in question here was in substance and in fact a preliminary expenditure in opening up a new seam of coal, and was an expenditure of capital. I do not see my way to disturb that finding, but I only wish to add that there may quite well be cases in which the cost even of extensive pumping incurred in the course of mining operations may be a revenue charge and properly charged against revenue. The reason why I reach my conclusion is because of the way in which the Commissioners in these findings have dealt with the subject-matter of the case." The observations of Lord Blackburn 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 op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y carried on business in motor accessories at Madras, Bombay, Coimbatore and Ootacamund, and in mica mine at Nellore. In this reference before us we are concerned with a sum of Rs. 5,420 which the company claims it is entitled to deduct for expenses incurred in carrying on the mica business. The mining business was started at Nellore in 1926. It was worked till November, 1927, when the production was stopped on account of cyclone. With a view to resume the production the company did some prospecting work and incurred an expenditure of Rs. 5,420 in 1928-29. This amount was made up of expenses on 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 compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the Tribunal in the instant case that the expenditure in question is capital in nature as the colliery was not working in the relevant year cannot be justified and is erroneous in law, as the assessee had been carrying on its business and had incurred the expenditure in the course of its business for resuming the operation of digging coal. As expenditure which has to be incurred by an assessee in the course of its trade to enable the assessee to carry on its trading operation should usually be considered to be revenue expenditure when other necessary conditions are satisfied. In the case of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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