TMI Blog2003 (11) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... read as under:- "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the expenditure of Rs. 2,16,000 incurred for construction of Manikyalal Verma Rajkiya Textile Institute as revenue expenditure, following its earlier order in I.T.A. Nos. 741, 742 and 615/JP/1992 in the assessee's case for the assessment year 1987-88 ignoring the fact that: (i) admittedly the expenditure is on construction of building and sections 30 to 36 read with section 37 do not provide for deduction of expenditure of capital nature. (ii) transfer of a capital asset cannot be construed to mean that capital nature into revenue and the reference to accrual of a benefit of enduring nature is quite irrelevant and in fact superfluous. (iii) the provisions of section 37(1) expressly exclude the allowability of capital expenditure even though wholly and exclusively laid out or expended for the purpose of business. 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law to come to the conclusion that the expenditure on construction of textile institute building was a business expenditure allowable as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. 8. The advisory committee shall consist of 2 members appointed by the mill. As per the said agreement on the land provided by the State, for the purpose the assessee raised construction of the building. The construction cost was incurred spreading over several assessment years. During the assessment year 1987-88 Rs. 15,05,007 was spent and during the relevant assessment year under appeal that is to say the assessment year 1990-91 Rs. 2,16,000 was spent. The assessee claimed these expenses for each year as revenue expenses to be deducted as business expenditure in computing the taxable income. However, the Assessing Officer has held the expenditure to be capital in nature and disallowed the same. The Commissioner of Income-tax (Appeals) affirmed the disallowance. The Tribunal in its common judgment following its earlier decision for the assessment years 1986-87 and 1987-88 and referring to the decision of the Supreme Court in Sassoon J. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261 and of the Bombay High Court in CIT v. Rajaram Bandekar [1994] 208 ITR 503 allowed the expenses as revenue expenses. This controversy is governed by the two questions referred to above. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court was about the contribution made by the Royal Calcutta Turf Club to a school for training of Indian boys as jockeys. During the year ending March 31, 1949, the Turf Club spent a sum of Rs. 62,818 on the running of the school and claimed that amount as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. Section 10(2)(xv) is a corresponding provision to section 37(1) of the Income-tax Act, 1961. The court concluded by holding the expenses to be revenue expenditure that the amount spent by the turf club was not in the nature of a capital expense because no asset of enduring nature was created thereby and that the amount was spent for the preservation of its business, it was laid out wholly and exclusively for the purpose of the business of the turf club and was an allowable deduction under section 10(2)(xv) of the Income-tax Act. In Lakshmiji Sugar Mills Co. P. Ltd. v. CIT [1971] 82 ITR 376 the Supreme Court was considering a case in which the appellant coming before the Supreme Court contributed amounts for the construction and development of roads between the various sugarcane producing centres and the sugar factories of the assessee. This expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge secured was in the field of revenue and not capital. Consequently, the expenditure was deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922, in computing the respondent's business profits. The Supreme Court affirmed these conclusions. It may be noticed that notwithstanding the asset of enduring nature in the form of installed pipelines did come into existence, the asset did not become an asset of the assessee. This was the reason that prevailed to conclude that no capital asset was acquired by the assessee by laying out the expenses. But since the purpose was to acquire an advantage or benefit to the business of the assessee, the expenses were held to be of revenue nature and business expenditure. In CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1996] 219 ITR 521 the Supreme Court was concerned with the question whether the amount spent by the assessee-company for securing construction of tenements for the company's workers through the State Housing Board was a business expenditure of revenue nature which could be allowed as deduction under section 37 of the Income-tax Act, 1961. The assessee-company acquired no ownership rights in the said tenements. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital outlay. However, the Tribunal found in favour of the assessee since the assessee had acquired no interest by way of ownership right in the newly constructed building, as under the lease agreement, it was to become the property of the lessor. The amount spent by him for constructing the building must be held to be revenue expenditure as a part of the total lease money to be paid by him by a different mode. The High Court affirmed the finding of the Tribunal. The Supreme Court on appeal by the Revenue while dismissing the appeal held that by spending his money, the assessee did not acquire any capital asset. The only advantage which the assessee derived by spending the money was that it got the lease of a new building at a low rent. From the business point of view, therefore, the assessee got the benefit of reduced rent. The High Court had, therefore, rightly considered this as obtaining a business advantage. The expenditure was, therefore, to be treated as revenue expenditure. From the aforesaid judgments of the Supreme Court, it is apparent that merely because the amount spent has been used for construction of a building or structure of permanent nature is not the decisiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of constructing houses for the company's workers by the Government under the subsidised industrial housing scheme sponsored by the State Government. The purchase price of the land was claimed to be revenue expenditure as deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922 as the case related to the year 1958-59. The departmental authorities rejected the case of the assessee but the Tribunal upheld the claim on the ground that the expenditure was incurred wholly and exclusively for the purpose of the business of the assessee and the assessee had not acquired any capital asset of enduring nature nor had any enduring benefit accrued to the assessee by the purchase. The High Court reasoned that as the assessee-company would not have any interest in the buildings to be built on the land and their obligation would be over by contributing their share towards the scheme, it cannot be said that the assessee-company in spending the money expected to acquire or bring into existence any advantage for the enduring benefit of the business but the expenditure was incurred more as a matter of commercial expediency in pursuance of an agreement and the amount in question was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eakable rule. The principle was considered by the Supreme Court in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1. In the said case, the court observed that there may be cases where expenditure, even 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 principle 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 in enabling the management in the conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the assessee derived dwells in future. The court observed as under: "... the conclusion is that the amount in dispute was laid out wholly and exclusively for the purpose of the respondent's business because if the supply of jockeys of efficiency and skill failed the business of the respondent would no longer be possible. Thus, the money was spent for the preservation of the respondent's business." By laying out the expenditure for bringing into existence a building to be owned by the State and to be run by the State for the benefit of the industry for the purpose of training its workmen was clearly related to the running of the business of the assessee more efficiently and smoothly by securing the assessee's workmen trained, skilled and efficient. We have no hesitation in coming to the conclusion that in the facts and circumstances which exist in the case, the expenses incurred by the assessee towards construction of the building for Manak Manikya Lal Verma Textile Institute, Bhilwara, were expenses wholly and exclusively incurred for the purpose of the business of the assessee and was not in the nature of capital expenditure. Therefore, the same is allowable as revenue e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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