TMI Blog1989 (5) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and the Electricity Board, that when the service lines and apparatus remained the property of the Electricity Board, though payment had been made by the assessee for that and when the service lines are maintained by the Electricity Board and that when they were entitled to supply electricity to other consumers on the same line as per clause 5(3) of the agreement, the payment made by the assessee was for facilitating supply of electrical energy and hence the expenditure is an allowable revenue deduction. The Commissioner held that as the company would continue to derive benefit having electricity supplied to the plant even after payment of the instalments ceased to be paid after 25 years, there was an enduring advantage to the assessee and hence the payment in question should not be allowed as a revenue deduction. The assessee contended before the Tribunal that when maintenance of the service lines was the responsibility of the Electricity Board and when default in payment would lead to disconnection of energy and when the meter boxes were the property of the Electricity Board, the expenditure in question would certainly be revenue in nature because, without payment of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. The payment was made out of the profits of the company and thus is relatable to its annual profit which flowed from its manufacturing activities and had no relation to the capital value of its assets. The payment was not tied up or related to any fixed purpose for acquisition of assets of the company, because there was no dispute that the service lines were not part of the assets of the assessee. On the aforesaid facts, the question as set out hereinbefore has been referred to this court. The question is whether the payment in terms of the agreement by and between the assessee and the West Bengal Electricity Board is a revenue expenditure or a capital expenditure. At the hearing, counsel for the parties reiterated the contentions raised before the Tribunal. It is necessary to refer to the agreement. The agreement was entered into by the assessee with the Electricity Board on June 29, 1961. The preamble to the agreement states "Whereas the assessee requested the Electricity Board to provide for supply of electrical energy for use in the assessee's premises and the Board had agreed to provide such supply of energy upon the terms and conditions contained in the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Board for the reception of the electric lines and apparatus provided for the purpose of the supply and for accommodation of the apparatus mentioned in clause 6 above to be installed for the purpose of providing, transforming, controlling and/or metering the supply. Clause 19(1) : The consumer shall not be at liberty, save with the consent of the Board, to determine this agreement before the expiration of twenty-five years from the date of commencement of the supply hereunder." Mr. Bajoria contended that this question is virtually concluded by decision of the Bombay High Court where a similar question was considered by that court in the case of CIT v. Excel Industries Ltd. [1980] 122 ITR 995. In that case, the assessee paid a sum of Rs. 9,00,000 to the Gujarat Electricity Board towards the cost of laying overhead service line. The question arose whether the expenditure was a revenue expenditure or a capital expenditure., After considering the several decisions cited before that court, it has been held as follows (at pages 997, 999): "An analysis of the facts set out earlier shows that the amount in question has been paid by the respondent towards the construction of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 1959-60, the assessee spent a sum of Rs. 2,09,459 towards installing water pipelines and accessories outside the factory premises which were to belong to and be maintained by the municipality. Since it was not disputed that the entire expenditure concerned installations and accessories which came to the ownership of the municipality, the High Court held that the expenditure was revenue in nature and deductible in computing the profits of the company. The Supreme Court, affirming the decision of the Bombay High Court, held as follows (at pages 261-263) : "Mr. Manchanda, learned counsel for the appellant, has raised only two contentions before us. The first contention was that since as a result of the expenditure incurred, certain water pipelines were laid which could be regarded as capital assets, the expenditure could only be regarded as capital expenditure. In our view, there is no substance in this contention. It is true that certain water supply lines did come to be laid as a result of the expenditure incurred, but the facts on record, which we have referred to above, clearly show that these water pipelines on which the expenditure in question was incurred were not ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to pay the cost of the service lines and apparatus on an instalment basis provided it agrees in writing to pay in addition to energy and other charges a monthly fixed sum of Rs. 13,895 towards the cost of such service lines and apparatus till such time as the entire amount of Rs. 25 lakhs towards the cost of service lines and apparatus with interest is paid. This clause unmistakably points out that, although the cost of service lines and apparatus has been borne by the assessee, the Board is the owner of such service lines and apparatus. By payment of the amount in question, the assessee has acquired the right to use the service lines and apparatus for the purpose of having energy from the Board. By the expenditure in question, the assessee did not acquire any asset. The service lines and apparatus did not belong to the assessee but continued to belong to the Board. An amount spent by the assessee may be deductible as a revenue expenditure even though it results in the acquisition of a capital asset by the third party. In the instant case, the expenditure has been incurred by the assessee only to run its own business more profitably and more advantageously. The expenditure in qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not so transitory as to have no endurance at all'. There may be cases where expenditure, even if incurred for obtaining 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 enabling the management and 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." Even assuming that the assessee-company obtained an advantage of enduring nature, in view of the principles laid down by the Supreme Court in Empire Jute Co. Ltd.'s case [1980] 124 ITR 1, even if securing electric energy for the business is a benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer disallowed the expenditure in the assessments reopened, under section 147. The first appellate authority reversed the order of the Income-tax Officer. The Tribunal held that it is a revenue expenditure and also allowed the reference application under section 256(1) of the Income-tax Act. Similar is the case for the assessment years 1975-76 and 1976-77, where the Income-tax Officer disallowed the expenditure and the Commissioner of Income-tax (Appeals) reversed the order of the Income-tax Officer. The Tribunal confirmed the orders of the Commissioner of Income-tax (Appeals). In this case also, the Tribunal made a reference under section 256(1). For the assessment years 1977-78 to 1979-80, the Tribunal had confirmed the orders of the Commissioner of Income-tax (Appeals) who allowed the expenditure as revenue expenditure, reversing the orders of the Income-tax Officer on this point. But the Department did not prefer any application under section 256(1) of the Act on this issue. For the assessment years 1980-81 to 1982-83, the Income-tax Officer disallowed the expenditure and, thereafter, on appeal, the Commissioner of Income-tax (Appeals) allowed the expenditure as reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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