TMI Blog1994 (12) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessment years 1972-73, 1973-74 and 1974-75 ? " The questions in all the Departmental references are : " 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the compensation paid by the Government of Tamil Nadu to the assessee in respect of the unexpired portion of the route value should be added to the cost of the stage carriage and depreciation allowed accordingly ? " One of the assessees is Cheran Transport Corporation Limited, Coimbatore. The assessee is a company which was incorporated on February 17, 1972. On February 25, 1972, the Government of Tamil Nadu notified March 1, 1972, as the date on and from which the stage carriages owned or operated by the Annamalai Bus Transport Private Limited, Pollachi, shall vest in the Government under section 3(1) of the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act, 1971. Thereafter, by a Government order of the same date, the stage carriages and other properties so acquired were transferred to the assessee corporation with effect from March 1, 1972, under section 15(1) of that Act. Section 3 of the Act provided for the vesting of stage carriag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the balance of Rs. 4,02,700 was brought down as written down value as on March 31, 1972. Thus, for the assessment year 1972-73 corresponding to the previous year ended March 31, 1972, the assessee showed a loss of Rs. 7,49,605 after the deduction of depreciation which included the said sum of Rs. 21,200 and the assessment was completed accordingly. In the balance-sheet as on March 31, 1973, the assessee changed the head under which this amount was exhibited from fixed assets to miscellaneous expenditure. To this sum of Rs. 4,02,700 carried over from the preceding year, a sum of Rs. 4,12,000 for the compensation for route permits acquired from the transport units of the Nilgiris District under the Tamil Nadu Stage Carriages and Contract Carriages (Acquisition) Act, 1973, was added to make a total of Rs. 8,14,800 out of which a sum of Rs. 3,01,100 was deducted in the profit and loss account as permit compensation written off and the balance of Rs. 5,13,700 loss shown as compensation for permits under the miscellaneous expenditure on the assets side of the balance-sheet. Thus, for the assessment year 1973-74 corresponding to the previous year ended March 31, 1973, the assessee sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n these cases, the Commissioner of Income-tax (Appeals) allowed it as a revenue expenditure. Aggrieved, the Department filed appeals before the Appellate Tribunal. The Tribunal held that the compensation paid by the assessee is capital in nature and also directed the Income-tax Officer to allow depreciation as claimed by the assessee on verification of facts. Aggrieved by the order of the Tribunal, both the assessees as well as the Department are in references before this court. The Department is aggrieved because, according to the Department, the assessee is not entitled to depreciation. The assessee is aggrieved because the compensation should not be treated as capital but it should be treated as revenue expenditure. Learned counsel appearing for the assessee submitted that the compensation paid by the assessee to the fleet owners should be treated as revenue in nature. It was submitted that by acquiring the buses along with the route permits, the assessee was not getting any benefit of enduring nature. According to learned counsel, the assessees are also like any other private bus operators liable to get permits for running the buses on the routes. Therefore, learned counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... private operators by the corporation in the manner provided for under section 68G of the Motor Vehicles Act was an expenditure of a capital nature and, as such, not entitled to deduction under section 37 of the Income-tax Act, 1961. On the other hand, learned counsel appearing for the assessee, in order to support his contention that the compensation paid by the assessee was of revenue nature, relied upon a decision of the Supreme Court in Empire Jute Co. Ltd. v.CIT [1980] 124 ITR 1. According to the facts arising in that case, the assessee purchased " loom hours " from four other mills for the aggregate sum of Rs. 2,03,255 during the previous year relevant to the assessment year 1960-61 and claimed to deduct that amount as revenue expenditure. On these facts, the Supreme Court held that the expenditure incurred for the purpose of operating the looms for longer working hours was primarily and essentially related to the operation or working of the looms which constituted the profit-making apparatus of the appellant and was expenditure laid out as part of the process of profit-earning. It was an outlay of a business in order to carry it on and to earn a profit out of this expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the route permits, while depreciation is permissible on the value of the buses. Learned counsel appearing for the assessee contended that the assessee is also entitled to claim depreciation on the value of the route permits. In order to support this contention, learned counsel appearing for the assessee submitted that inasmuch as the value paid for the route permit and the buses are intertwined the same is capital in nature and the assessee is entitled to get depreciation on the capital asset. However, learned standing counsel for the Department relied on a decision in G. Vijayaranga Mudaliar v. CIT [1963] 47 ITR 853 (Mad) in order to support his contention that the assessee is not entitled to get depreciation on the value of the route permits. In the abovesaid decision, this court held that (at page 858) : " Buses have little value shorn of their permits to ply on particular routes. It is an open secret that when buses are transferred the consideration paid by the purchaser of the vehicles is only commensurate with their earning capacity which is intimately connected with the routes on which they operate. But nevertheless no transferor admits having received any conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, capital expenditure. Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155 and Assam Bengal, Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC) applied ; Granite Supply Association Ltd. v. Kitton [1905] 5 TC 168 (C Exch.) followed. (ii) that no depreciation could be claimed because no tangible asset was acquired by the expenditure and no improvement was made in any capital asset in the sense that there was an increase in the value thereof. In order to be entitled to depreciation on 'capital expenditure.... for additions, alterations, improvements and extensions' envisaged in column 3 of Part V of the Form of Return prescribed by rule 19 of the Indian Income-tax Rules, 1922, there has to be an improvement of the capital asset, an increase in its value. " According to the facts arising in the present case, the assessee has not incurred the expenditure with regard to the acquiring of route permits after the business was started. In fact, the business was started with the acquisition of the route permit. In G. Vijayaranga Mudaliar v. CIT [1963] 47 ITR 853, this court clearly held that when the compensation amount was paid for buses and the route permits sepa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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