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TMI Blog2006 (11) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances of the case, the hon'ble Income-tax Appellate Tribunal was justified in holding that the amount of TDS is a part of circulatory capital of the assessee and in allowing the amount of Rs. 2,04,259 being TDS certificates from banks as revenue expenditure without appreciating the fact that the amount in question was never employed in trading operation of the business ?" 2. The assessee was running a paper mill which generated effluents. It was under an obligation to arrange discharge of the said effluents. An agreement was reached with the Forest Department allowing the assessee to build a drain for discharge of effluents in Tallewal drain. The assessee built such a drain by spending Rs. 70,79,862. The assessee claimed the said amount as revenue expenditure, which was disallowed but the Commissioner of Income-tax (Appeals) allowed the said claim which has been upheld by the Tribunal. It was observed by the Assessing Officer : "4.1 I have carefully gone through the judgments relied upon by the assessee on the basis of which it has claimed the expenditure of Rs. 70,79,862 incurred by it on the construction of pipeline for disposal of effluents, as 'revenue expenditure'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Silk Mills Ltd. had made payments to the Municipal authorities and Luxmijee Sugar Mills Co. Ltd. had made payment to the Cane Development Council. However, in the case of the present assessee, it has not made payment to any other agency rather it has incurred the expenses itself for the construction of the drainage pipeline to discharge its effluents. The drainage pipeline constructed by the assessee-company is not a public property, but an exclusive property/asset of the assessee for discharging the effluents from its factory. 4.2 Keeping those facts in view, the judgments relied upon by the assessee are not applicable and relevant in the case of this assessee. Moreover, the assessee has itself debited an amount of Rs. 70,79,862 to the 'building account'. Since the benefit accrued by the assessee for its business by constructing the said pipeline, is a benefit of enduring nature and a tangible asset in the form of drainage pipeline has come into existence, the amount of Rs. 70,79,862 incurred by the assessee on the construction of pipeline cannot be allowed as 'revenue expenditure' and the same is capitalized under the head 'building account' as has been done by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He relied upon judgments cited in the order of the Tribunal and also gave a list of the following judgments in support of his submissions : (1) Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC). (2) Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC). (3) L. H. Sugar Factory and Oil Mills P. Ltd. v. CIT [1980] 125 ITR 293 (SC). (4) CIT v. Associated Cement Companies Ltd. [1988] 172 ITR 257 (SC). (5) Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377 (SC). (6) Bikaner Gypsums Ltd. v. CIT [1991] 187 ITR 39 (SC). (7) CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1996] 219 ITR 521 (SC). (8) CIT v. Kirkend Coal Co. [1966] 60 ITR 537 (Patna). (9) CIT v. Belgachi Tea Co. Ltd. [1975] 99 ITR 99 (Cal). (10) CIT v. J. A. Trivedi Bros. [1979] 117 ITR 983 (Bom). (11) CIT v. Singareni Collieries Co. Ltd. [1980] 121 ITR 466 (AP). (12) Hindustan Times Ltd. v. CIT [1980] 122 ITR 977 (Delhi). (13) CIT v. Navsari Cotton and Silk Mills Ltd. [1982] 135 ITR 546 (Guj). (14) CIT v. Hingir Rampur Coal Co. Ltd. [1983] 140 ITR 73 (Bom). (15) CIT v. Makhan Sarmah Savapandit [1989] 180 ITR 35 (Gauhati). (16) CIT v. Bharat Commerce and Industries Ltd. (No. 1) [1990] 184 ITR 90 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence." 9. In Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC), several tests for determining the nature of expenditure were discussed and the following passage from the judgment of the Full Bench of the Lahore High Court in Benarsidas Jagannath, In re [1947] 15 ITR 185 (Lahore) was approved (page 198) : "It is not easy to define the term 'capital expenditure' in the abstract or to lay down any general and satisfactory test to discriminate between a capital and a revenue expenditure. Nor is it easy to reconcile all the decisions that were cited before us for each case has been decided on its peculiar facts. Some broad principles can, however, be deduced from what the learned judges have laid down from time to time. They are as follows :— 1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment : vide Lord Sands in Commissioners of Inland Revenue v. Granite City Steamship Co. Ltd. [1927] 13 TC 1, 14 (CS). In City of London Contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. In spite of the above tests having been laid down as far back as in the year 1942, the difficulty continues to arise in application of the tests and it has been often held that the tests cannot be accepted as universal and peculiar features of each case have to be kept in mind. 12. In K. T. M. T. M. Abdul Kayoom v. CIT [1962] 44 ITR 689 (SC). It was observed (page 703) : ". . . none of the tests is either exhaustive or universal. Each case depends on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of an another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at all decisive. What is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relation inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases." 13. In Bombay Steam Navigation Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure is often times very thin. It will not be correct to say that by avoiding certain business expenditure, the company can be said to have acquired enduring benefits or acquired any income yielding asset. The payment to remove the possibility of a recurring disadvantage was held to be revenue in nature. 17. In Mewar Sugar Mills Ltd. v. CIT [1973] 87 ITR 400 (SC), while dealing with the proposition to consider as to whether the expenditure in question was revenue or capital, in the facts of the case, payment of royalty at the rate of 2 per cent. on the price of sugarcane manufactured was held to be revenue in nature. As the same was directly related to the sugar manufactured, the royalty in question was not paid for getting some additional capital asset or even an enduring benefit. 18. In J. K. Cotton Manufacturers Ltd. v. CIT [1975] 101 ITR 221, while considering the issue, the hon'ble Supreme Court laid down as under (page 231) : "Several tests that have been evolved over the years by this court as also the other High Courts may be briefly formulated as follows : (1) Bringing into existence an asset or advantage of enduring nature would lead to the inference that the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that even where expenditure is incurred for "enduring benefit", the expenditure may be revenue expenditure unless the advantage is in the "capital field". If advantage was merely facilitating assessee's trading operation or enabling it to efficiently or more profitably run its business, leaving the fixed capital untouched, the expenditure will be revenue expenditure. It was observed that there was no addition to the profit-making apparatus of the assessee. 21. In L. H. Sugar Factory and Oil Mills P. Ltd. v. CIT [1980] 125 ITR 293 (SC), it was held as under : "The test for determining whether the expenditure in question is of capital or revenue nature is : When an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. But where there are special circumstances leading to a contrary conclusion, this test must yield. It would be misleading to suppose that in all cases securing a benefit for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no single definite criteria to determine whether expenditure was capital or revenue. "Once for all" payment test was inconclusive. 25. In Bikaner Gypsums Ltd. v. CIT [1991] 187 ITR 39 (SC), expenditure involved was for removing of a restriction which obstructed the business of mining. The same was held to be expenditure in the course of business and was revenue expenditure since no capital asset was acquired. 26. In CIT v. Sarabhai Management Corporation Ltd. [1991] 192 ITR 151, the hon'ble Supreme Court held that the expenditure made by an assessee on renovation of the property owned by him to confirm the requirement of a prospective tenant was held to be revenue in nature. 27. In CIT v. Indian Oxygen Ltd. [1996] 218 ITR 337 ; [1995] AIR 1995 SC 1737 it was held by the hon'ble Supreme Court that the amount paid by the assessee therein to a foreign company, which was not on account of outright purchase of any information, processes and inventions but was merely for use for a specified period, which could also be curtailed, was held to be revenue in nature. 28. In CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1996] 219 ITR 521 (SC), the question was whether professional char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether ; (3) Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital." 34. In CIT v. I. A. E. C. (Pumps) Ltd. [1998] 232 ITR 316 (SC), while reiterating the principles for determination of the nature of expenditure, the hon'ble Supreme Court held that payment made by the assessee to the foreign company merely as a licence fee is a revenue expenditure as the same was not the price for acquisition of any capital asset. 35. In Indore Municipal Corporation v. CIT [2001] 247 ITR 803 (SC), while dealing with an identical question for determination of expense on account of construction of metalled roads in trenching grounds for transport of night soil and compost, it was held that the expenditure was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n nature. The right acquired by the assessee to discharge effluents was not merely a facility for carrying on the business but such facility became available to the assessee with right and advantage of enduring nature. The expenditure in question enabled the assessee to use the drain for all times to come and even to transfer such a right. Distinguishing features noticed by the hon'ble Supreme Court in the above judgments to exclude the enduring benefit test do not exist in the present case. The assessee having incurred expenditure for acquiring a permanent right, the said expenditure could not be treated as revenue expenditure. Object test is also, thus, satisfied. 41. It is further relevant that for use of the right to transport its effluent through forest land, the assessee had transferred its own land. A copy of letter dated November 6, 1995, from the Government of India, Ministry of Environment and Forests to the Financial Commissioner-cum-Secretary (Forests) to Government of Punjab, Department of Forest and Wildlife has been produced before us vide which permission had been granted to the assessee to dig out the drain. A perusal of the letter shows that there is no time limi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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