TMI Blog1990 (1) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... ters. The assessee claimed this sum as part of quarry maintenance expenditure, though incurred towards the construction of the quarters for the workers at the quarry. The assessing authority, following the decision of the Appellate Assistant Commissioner (issued under section 144B of the Act), held it to be capital expenditure and hence the claim for deduction was disallowed ; however, he allowed depreciation on it. The Commissioner of Income-tax (Appeals) accepted the claim of the assessee by following the decision of the Andhra Pradesh High Court in CIT v. Singareni Collieries Co. Ltd. [1980] 121 ITR 466. The Revenue appealed to the Appellate Tribunal. The Appellate Tribunal held that, (i) the expenditure incurred by the assessee was for the welfare of its employees which was a "normal business expenditure" ; (ii) the assessee did not acquire, any capital assets; consequently, the Tribunal upheld the order of the appellate authority in this regard. The Revenue, not being satisfied with the order of the Tribunal, sought this reference. Before proceeding further, it will be useful to refer to an agreement under which those quarters were constructed. A copy of the agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the assessee is not the full cost of construction, but only 26% of the cost. The agreement was Co be in force only for period of 15 years. A substantial part of the cost of construction is met by the Central Government in whom ownership of these houses would vest. The expenditure thus incurred by the assessee does not result in the assessee getting any proprietary interest in these assets. The payments made by the assessee are in the nature of expenditure incurred for a welfare measure. Thus, the expenditure incurred by the assessee is more in the nature of a contribution towards a welfare scheme. Learned counsel for the Revenue and the assessee cited several decisions as to the test to be applied to find out the nature of an expenditure, namely, whether a capital expenditure or a revenue expenditure. The question is not free from difficulty. It has not been possible for any court to enunciate a fixed formula having universal application in this regard. Repeatedly, it has been pointed out that the dividing line between the two concepts is very thin ; if so, a marginal treading into one area from another is inevitable. Though it may be treated as a question of law as to whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 enabling the management and conduct of the assessee's business to be carried on more effectively 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 Supreme Court, on facts, found that the company therein did not acquire any capital assets as a result of the expenditure in question and that there was no change in the capital structure ; the pipelines, etc., though laid down by the company, vested in the municipality. In those circumstances, the expenditure was held to be a revenue expenditure. The decision of the Bombay High Court in Cooper Engineering Ltd. v. CIT [1988] 169 ITR 66 as summarised in the said law report, reads: The Maharashtra Housing Board built tenements under the subsidised Industrial Housing Scheme for housing industrial workers of the assessee in accordance with a scheme sanctioned by the Government. A certain amount was required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a decision of the Allahabad High Court. There also, a similar scheme and expenditure incurred thereunder came up for consideration. The Government introduced a scheme for construction of workmen's staff quarters. Under it, the employer company was to lease out its land near its factory to the U. P. Housing Board. The Government was to contribute some amount for construction of staff quarters for the factories and the balance was to be contributed by the factory owners and contractors. These quarters were to remain the property of the U. P. Sugar and Power Alcohol Housing Board and they were to be leased out to factory owners on the agreed terms and conditions. The assessee gave out some land and paid Rs. 32,004 towards the, cost of construction of the quarters and secured the quarters for exclusive use by its workers for an unlimited time. The assessee claimed this sum of Rs. 32,004 as business expenditure. The High Court held that the facts were more akin to the case of Travancore-Cochin Chemicals Ltd. [1977] 106 ITR 900, wherein the Supreme Court held that expenditure incurred for laying out a new road to facilitate the business of the assessee-company was of capital nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, without being guilty of committing trespass. Palani Andavar Mills Ltd. v. CIT [1977] 110 ITR 742 is another decision of the Madras High Court, wherein the amount spent by the assessee (which was only a part of the total cost) 6n the construction of an elementary school on the land of the Employees' Housing Co-operative Society was held as not an amount spent towards a trading transaction. The court found that the nature as well as The manner in which the same were dealt with in the accounts showed that, the assessee intended only to advance loans to its employees and this circumstance weighed with the court in its ultimate conclusion. The claim of the assessee was based on its writing off of these amounts as not recoverable. The court held that the writing-off of the loans was not relatable to the assessee's trading transaction. This decision is based on its peculiar facts and has no resemblance to the case before us. The Tribunal, in the instant case, relied on a decision of the Andhra Pradesh High Court in CIT v. Singareni Collieries Co. Ltd. [1980] 121 ITR 466. The Coal Mines Labour Housing Board was constituted for the construction of low cost houses for persons employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee incurred the expenditure not for the purpose of bringing into existence an enduring benefit for its business but for carrying on its business profitably." In CIT v. Hingir Rampur Coal Co. Ltd. [1983] 140 ITR 73, the Bombay High Court had to consider the question involving almost similar facts as in the instant case. Under the agreement with the Coal Mines Labour Housing Board, the assessee which owned a colliery spent a certain sum of money on the construction of 100 tenements for its workers and staff at the colliery. The agreement was to be in force for. 15 years from the date of completion of the houses ; the houses constructed were to vest in the Board ; the rent recoverable by the assessee from the allottee was not to exceed Re. 1 per month. The Board was to subsidise the entire cost of construction of each house, subject to a maximum of Rs. 1,600 per house. The clauses relating to maintenance and repair also were similar to the terms of the agreement involved in the case before us. The Bombay High Court held that, having regard to the agreement, which limited its period of operation only for 15 years, and the amounts spent by the assessee, being towards the wel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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