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TMI Blog1982 (8) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment Corporation (hereinafter referred to as the Corporation), under which a licence and/or permission was granted to the assessee in respect of a plot of land at Gomiah belonging to the Corporation measuring about 18.25 acres on, inter alia, the following terms and conditions: (a) The said licence and/or permission would be for a term of 10 years commencing from the 1st May, 1963. (b) The assessee would pay an annual licence fee of Rs. 4,500 to the Corporation during the said term. (c) The assessee would construct on the said land at its cost an airstrip and buildings ancillary thereto which would become and remain the property of the Corporation. (d) The assessee would be entitled to use, occupy and enjoy the said land and the airstrip during the said term. (e) In the event of the said land or any part thereof being acquired or requisitioned during the term, the licence would determine and the assessee would be entitled to receive and keep such compensation as it may be entitled to in law subject to the condition that the Corporation would be entitled to receive compensation for the land. (f) On a notice being given before the expiry of the term and subject to due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring nature, and upheld the order of the ITO. On the disallowance of the interest paid on the, overdraft, the Appellate Commissioner held that cumulative debit balance in the account in each of the months showed that the overdraft was partly utilised for the purpose of payment of taxes. He held that the entire interest paid was not allowable as deduction. The assessee preferred a further appeal before the Income-tax Appellate Tribunal. It was contended in the appeal by the assessee that the construction of the airstrip had facilitated the running of the business of the assessee and that the expenditure was, therefore, incurred out of business necessity or commercial expediency. It was also contended that such expenditure or outgoing was closely related to the carrying on or conduct of the business and must be held as a part of the profit-earning process of the assessee. It was submitted further that in terms of the agreement the entire airstrip had to be handed over to the Corporation within a period of 10 years and, therefore, the assessee could not be deemed to have received any enduring benefit or a benefit of a permanent character. The Revenue contended to the contrary. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -67, respectively, was a capital expenditure, ? Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the disallowance of interest paid by the assessee to the extent of Rs. 2,82,408 ? " On the first question, the learned advocate for the assessee contended at the hearing that the Tribunal had found as a fact that the assessee incurred the expenditure for construction of the airstrip with a view to run its business smoothly. This finding has now become final and concluded the issue. The conclusion of the Tribunal that the assessee had obtained an enduring benefit and, therefore, the said expenditure was a capital expenditure was erroneous as the Tribunal proceeded solely on the basis of the result of the expenditure and failed to consider its purpose. In support of his contentions learned advocate for the assessee cited the following decisions: Anglo-Persian Oil Co. Ltd. v. Dale [1931] 16 TC 253 (CA). In this case Romer L.J. considered the principles laid down by Viscount Cave in Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155 (HL), as follows (p. 274): " But when an expenditure is made, not only once and for all, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g observation of the Supreme Court was relied on : " The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. " Learned advocate for the assessee also cited Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC). In this case, the assessee-company carried on the business of manufacture of jute. The members of the Indian jute Mills Association of which the assessee was, also a member entered into an agreement between themselves restricting the number of hours per week during which the mills would be entitled to work their looms (known as loom hours). The agreement provided that the members would be entitled to transfer in part or wholly their allotment of working hours per week to the other member or members. The assessee purchased loom hours from four other mills during the relevant accounting year and claimed deduction of the expenditure incurred in the computation of its income. On a reference to this court, following the decision of the Supreme Court in CIT v. Maheswari Devi Jute Mills Ltd. [1965] 57 ITR 36 (SC), it was held that the expenditure for purchase of loom hours was in the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the Revenue contended to the contrary and submitted that the Tribunal has found that the expenditure was also for the acquisition of an asset or a right of a permanent character and that the assessee in fact obtained an advantage which was of an enduring benefit to the assessee. Such finding was conclusive. In support learned advocate for the Revenue cited a number of cases which are noted hereafter as a useful collection of case-law on the point (a) Ounsworth v. Vickers [1915] 6 TC 671 (HL). (b) Margrett v. Lowestoft Water & Gas Co. [1935] 19 TC 481 (KB). (c) Norman v. Golder [1944] 26 TC 293 (CA). (d) Avon Beach & Cafe Ltd. v. Stewart [1950] 31 TC 487. (e) Strick v. Regent Oil Co. Ltd. [1965] 43 TC I (HL). (f) Pitt v. Castle Hill Warehousing Co. Ltd. [1974] 49 TC 638 (Ch. D). (g) Sitalpur Sugar Works Ltd. v. CIT [1963] 49 ITR 160 (SC). (h) Ganesh Sugar Mills Ltd. v. CIT [1969] 73 ITR 395 (Cal). (i) R. B. Seth Moolchand Suganchand v. CIT [1972] 86 ITR 647 (SC). (j) CIT v. North Dhemo Coal Co. Ltd. [1977] 106 ITR 592 (Cal). He also cited the following decisions which we note in particular: (a) Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT[1965] 56 ITR 52 (SC). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a decision of Division Bench of this court in Woolcombers of India Ltd. v. CIT [1982] 134 ITR 219. In this case, a few days before the end of the assessee's accounting year, the balance in its overdraft account was in debit. The assessee paid advance tax from this account which increased the debit at the end of the accounting year. In computing the income of the assessee, it was held by the ITO that payment of advance tax was not a business expenditure and disallowed interest payable by the assessee on the said overdraft account proportionately. This decision was affirmed by the AAC and the Tribunal. On a reference, the assessee contended that where the total profits of the assessee's business was sufficient to cover the payment of advance tax during the relevant accounting year, if the same was paid from an account which included the amount of profit as well as the overdraft taken for the purpose of the business, the presumption would be that the tax was paid out of the profit and not on overdraft credit. The total amount of the profit deposited in the account having exceeded the liability for tax, it should be held that the tax was paid out of the profit. It was submitted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a result, benefit or advantage certain to endure for ten years and likely to endure for twenty years came into existence. This has been found as a fact. It is also the finding of the Tribunal that such an expenditure was related to the carrying on, or conduct of, the business of the assessee. The conclusion must follow that the assessee incurred expenditure for the acquisition of an asset considered to be a source of profit or income. In any event, there was an accretion to or augmentation of the profit-making structure of the assessee as a result of the aforesaid expenditure. The whole of the capital asset or permanent structure of the assessee's business appreciated and became more profit-yielding. In our view, the expenditure satisfies all the tests of expenditure of a capital nature. The facts before us are entirely different and distinguishable from the special facts before the Supreme Court in Empire lute Co. Ltd. v. CIT [1980] 124 ITR 1. For the above reasons we answer the first question in the affirmative and in favour of the Revenue. On the second question we have considered the submissions of learned counsel for the Revenue which may not be without substance. But so f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le institutions which were deposited in a common fund where other income of the assessee from trust property, etc., were also deposited. Out of this composite fund all expenses were met. While computing the aggregate income for the purpose of s. 11 of the I.T. Act, 1961, the voluntary contributions were not taken into account and the rest of the income was set off against the entire expenditure incurred in respect of which exemption was claimed under s. 12. On this fact it was held by a Division Bench of this court approving Sterling Trust Ltd. [1925] 12 TC 868 (CA), that though paid out of a common fund, the expenditure incurred should be considered to have been made out of the income derived from property held under the trust. There was no provision for apportioning the expenditure between the different heads. We are not inclined to take a view different from that already expressed by this court earlier. We also do not express any opinion on the question whether interest paid on money borrowed for payment of income-tax is business expenditure. Accordingly, we answer the second question in the negative and in favour of the assessee. Inasmuch as both the Revenue and the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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