TMI Blog1980 (7) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... ult of revaluation of the assets of the assessee-company for which the payment was made, no asset or advantage of an enduring benefit had come into existence and the only purpose of the revaluation was to improve the credit-worthiness of the company so that it could obtain loans for the purpose of its business without difficulty or inconvenience. The AAC did not accept the argument of the assessee. But at the same time he made reference to the report of the directors dated May 1, 1961, to the shareholders of the assessee-company. Therein, it was stated: " The value of the fixed assets of the company as appearing in the balance-sheet was disproportionate to their present day valuation and the directors, therefore, considered it fair that these assets may be revalued by expert valuers to bring them in line with the present day valuation in the balance-sheet. The result of this has been an increase in the fixed assets valuation to the extent of Rs. 26,96,000, which has been debited to the fixed assets and a capital reserve to this extent has been credited in the balance-sheet." But the AAC opined that these affected the capital structure of the company and, therefore, the expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id in the same case in the Court of Appeal and it had been anticipated by Rowlatt J. in Ounsworth v. Vickers Ltd. [1915] 3 KB 267; 6 TC 671 (KB). But it was the first full statement of the whole principle and it has since served as the basic text of the rule, subsidiary propositions being added from time to time by way of explanation or commentary. Thus, with reference to 'enduring benefit', Rowlatt J., said in the case of Anglo Persian Oil Co. v. Dak [1932] 1 KB 124; 16 TC 253 (CA) that the benefit must endure in the way that fixed capital endures and not in the sense that for a good number of years it relieves the business of a revenue payment. This interpretation of 'enduring benefit' has been universally accepted and approving of it in the same case in the Court of Appeal, Romer L.J. said that the benefit secured to the business must be a capital benefit. 'Enduring', however, it was explained by du Parcq L.J., in the case of Henriksen v. Grafton Hotel Ltd. [1942] 24TC 453; [1943] 11 ITR (Suppl.) 10 (CA) does not mean 'everlasting', but only means that the benefit must be of sufficient durability to justify its being treated as a capital asset. The asset need not be anything tan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rises for consideration where the expenditure is incurred while the business is going on and is not incurred either for extension of the business or for the substantial replacement of its equipment. Such expenditure can be looked at either from the point of view of what is acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If, on the other hand, it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure." Next reference is made to another decision of the Supreme Court in the case of CIT v. Coal Shipments (P.) Ltd. [1971] 82 ITR 902. At p. 909, it is stated therein : " The character of the payment can be determined, it was added, by looking at what is the true nature of the asset which has been acquired and not by the fact whether it is a payment in a lump sum or by instalments. It is also an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HP), while distinguishing capital and revenue expenditure, reiterated the principles discussed above. This court again in the case of Hindustan Gas and Industries Ltd. v. CIT [1979] 117 ITR 549 (Cal), held that in such a case the onus was always on the assessee to prove the nature and character of the expenditure and in the facts and circumstances of that case it was held that the expenditure incurred for payment of legal charges to solicitors on the issue of prospectus for offering redeemable preference shares to the public and payment of underwriting commission and brokerage for the issue of the same was capital expenditure and not revenue expenditure. The Bombay High Court had also occasion to consider the question of onus in the case of CIT v. Ballarpur Industries Ltd. [1979] 119 ITR 817 (Bom). In this case also as the assessee could not discharge the onus that lay on him to prove that the item of expenditure in question was not of capital nature, the amount could not be allowed as a deduction. In the case of Southern (H.M. Inspector of Taxes) v. Borax Consolidated Ltd. [1942] 10 ITR (Suppl) 1, 5 (KB), Lawrence J. had considered the distinction between capital and revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween two shipping companies, the assessee-company was incorporated on August 10, 1953, to take over certain passenger and ferry services carried on by one of the former. On August 12, 1953, the assessee-company took over the assets, which were finally valued at Rs. 81,55,000 and agreed that the price was to be satisfied partly by the allotment of Rs. 29,990 fully paid up shares of Rs. 100 each and the balance was to be treated as a loan and secured by a promissory note and hypothecation of all immovable properties of the assessee-company. The balance remaining unpaid from time to time was to carry simple interest at 6 per cent. By a supplemental agreement, the original agreement was modified to the effect that the balance would be paid by the assessee-company until it was paid in full. The assessee-company was to pay simple interest at 6 per cent. per annum on so much of the balance as remained due. The balance was also to be secured by the hypothecation of all the movable properties of the assessee-company. During the relevant accounting years, the assessee paid interest as balance outstanding and the question was whether the interest paid was allowable as a deduction under s. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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