TMI Blog1977 (4) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... nal was justified in law in directing the Income-tax Officer to grant depreciation allowance on the roads and bridges ? " The first question was referred at the instance of the assessee and the other two questions were referred at the instance of the revenue. In order to decide these three questions of law we may briefly refer to the facts of the case. By G.O. Ms. No. 678 dated April 27, 1961, the Industries Department of the Government of Andhra Pradesh passed an order after considering the large number of representations received by the Government on the adverse effects of existing power rates upon the competitive capacity of the local manufacturers and the growth and expansion of industry in the State of Andhra Pradesh. Such representations were made to the Government impressing on it the necessity for the grant of suitable concessions in power rates applicable to the industry. A departmental committee consisting of the officials of the industrial department and the electricity department was constituted to consider the problem of supply of power to industry to make necessary recommendations in regard to the requirement of reduction in rates. The committee felt that reduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded before the ITO by the assessee that these sums were not taxable on the ground that the receipt was in the nature of a windfall and was casual. This contention was rejected by the ITO, who held that it was in the nature of a rebate from the Government towards power tariff and the same was assessable as revenue receipt and that the receipt had none of the characteristics of a windfall or a casual income. The ITO, accordingly, taxed the aforesaid amounts. On appeal, the AAC considered the contentions of the parties and held that the " subsidy " was given in pursuance of a definite policy of the Government and that the same was in the nature of a concession in the rates of electricity to certain industries. He further held that the income cannot be considered as a casual income or as a windfall and that the same was given by way of a concession to the general power tariff, otherwise payable by it. In effect, the AAC confirmed the order of the ITO and treated the above mentioned sums as the income of the appellant in both the assessment years. There was a further appeal before the Tribunal and the same contention was reiterated on behalf of the assessee. The Tribunal on a conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted for the grant of concessional rates, in view of the inability of the Andhra Pradesh Electricity Board to meet the cost involved the Committee considered that a subsidy should be granted to the Industries Department by the Government to defray the loss of revenue likely to be incurred by the Andhra Pradesh Electricity Board. The Director of Industries and Commerce has reported (in his second letter read above) that the present rates of power supply in Andhra Pradesh (as compared to those obtaining for the same loads in neighbouring States like Madras, Mysore and Bombay) have been a contributory cause of the unsatisfactory pace of industrial growth in Andhra Pradesh. He has, therefore, urged the grant of concessional rates of power supply to selected categories of medium and large industries on the following basis : (i) Power tariff rates in Andhra Pradesh should be brought on a level with those ruling in Mysore, Madras and Maharashtra for comparable loads. (ii) Concessional power rates should be offered to the following categories of new industries ; (a) industries for which power is an important cost factor ; (b) industries which require bulk loads ; and (c) es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonably expect the grant of the amount for a period for which the Government passed the orders. We are unable to see that how it could be called a windfall or a casual receipt. We do not see how the decision in Mehboob Productions Private Ltd. v. CIT [1977] 106 ITR 758 (Bom) supports the case of the assessee. In the said decision, it is no doubt observed thus : " All receipts by an assessee would not necessarily be deemed to be income of the assessee for the purpose of income-tax and the question whether any particular receipt is income or not, will depend on the nature of the receipt and the true scope and effect of the relevant taxing provision. " Having regard to the facts of the present case, we are clearly of the opinion that the receipt in the instant case can be included in the total income as it is not a casual or a non-recurring receipt. Even assuming it is considered as a casual and non-recurring receipt, under s. 10(3) of the I.T. Act if such a receipt arises from business then it could be included in the total income of the assessee. As stated earlier, the assessee would not have been entitled to this subsidy but for its carrying on the business. Therefore, it foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elfare expenses. This plea was rejected by the ITO on the ground that the said sum represented only a donation or contribution made to the Railways and not an expenditure incurred by the assessee. It is also observed by the ITO that this amount was paid for constructing a bridge which is not the assessee's property, but that of the Railways and, therefore, it cannot be said to be for business purposes. It was further held that it resulted in bringing into existence an asset of an enduring nature and as such it represented capital expenditure, but, however, no depreciation can be granted since the bridge was not the property of the assessee. In this view, he added the sum of Rs. 66,684 to the income returned by the assessee. The appeal preferred by the assessee to the AAC was also dismissed. On a further appeal before the Tribunal, it was contended on behalf of the assessee that the expenditure was exclusively incurred for the purpose of business. The attention of the Tribunal was drawn to the speech delivered on November 26, 1964, on behalf of the assessee-company, on the occasion of the opening of the road overbridge by the Railway authorities in which the circumstances leading to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el crossing would involve a recurring expenditure of Rs. 2,500 per annum, the factory considered the feasibility of having a rail-road overbridge at this location. Estimates were prepared by the railway administration for this purpose and finally when tenders were accepted for this construction, the estimate was Rs. 66,684. Though for many years the unmanned level crossing did not involve in accidents, in 1968, one of the State Road Transport buses collided with a railway engine and this accident involved injuries to 15 persons. Immediately, the railway administration pressed the company for the execution of the rail-road overbridge at their expense and in view of the actual safety that this work would ensure to the employees of the factory, the management readily consented to the construction of the road overbridge and deposited immediately the balance of amount payable to make up the final estimate of Rs. 66,684. It is further observed in the said speech that the management was satisfied that this is an amenity for the safety and in the interest of all the employees of the company. As the company's aided school for the children is situated on the factory side and the children pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and remained so even after the improvement had been done. The Supreme Court considered that the identical question about the admissibility of the claim for expenditure as in the case before them arose in the case of CIT v. Hindusthan Motors Ltd. [1968] 68 ITR 301 (Cal), before the Calcutta High Court. It was argued on behalf of the department before the Supreme Court that in the case before the Calcutta High Court, the expenditure was incurred only to meet the expenses of the repair and no asset or advantage of enduring benefit accrued to the assessee. Dealing with this contention, the Supreme Court has observed as follows : " This distinction does not appear to be sound because in the diverse nature of business operations it is difficult to lay down a test which would apply to all situations. The criteria has to be applied from the business point of view and on a fair appreciation of the whole situation. In the present case, apart from the element of compulsion, the roads which were constructed and developed were not the property of the assessee nor is it the case of the revenue that the entire cost of development of those roads was defrayed by the assessee ......... From the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard selfless loyalty, the proper legal inference would be that the expenditure was laid out for business expediency. It was further observed that to have a loyal body of employees was of great commercial expediency, and if the assessee-company made a payment to achieve such an object, the said expenditure could be said to have been incurred wholly and exclusively for the purpose of business. In the present case, the overbridge was constructed for the safety of the employees and vehicles of the assessee-company and also for the safety of the children of the company's aided school which is situate on the factory side. Such an amenity is certainly essential to earn the goodwill of the workers and hence it may be said to be incurred wholly and exclusively for the purpose of business. In the case of M. K. Brothers P. Ltd. v. CIT [1972] 86 ITR 38, 42, the Supreme Court has held that " payment made in the course of and for the purpose of carrying on business or trading activity would be revenue expenditure even though the payment is of a large amount and has not to be made periodically". To the same effect is the principle laid down in CIT v. T. V. Sundaram Iyengar Sons (P.) Ltd. [197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure incurred by the assessee was absolutely necessary for the purpose of running of the business. We see some force in the contention of the learned counsel for the assessee though no doubt it was held in the above judgment of the Supreme Court that by the construction of the new road for the improvement of the transport facilities the appellant therein acquired an enduring advantage for its business. It was not considered whether it was absolutely necessary for the improvement of the transport facilities which would confer an additional advantage for the running of the business. In the present case, as we have stated earlier, the construction of the bridge was an absolute necessity. In fact this proposal was started only after an accident had happened resulting in the death of many people in the premises. If the bridge was not constructed it may lead to many more accidents which ultimately may result in labour unrest as the colony is situated within the premises. Such an amenity is certainly to earn the goodwill of the workers. We are, therefore, of the opinion that the assessee is entitled to the claim of deduction for the sum of Rs. 66,684. This question is answered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material) course. 6. A way or direction taken or pursued by a person or thing ; a course followed in a journey. It is submitted that the assessee has spent huge sums for the construction of roads. Hence, it can be said that construction is involved in roads and roads are built on land by using the necessary material. In this connection, we may mention that in the case of buildings, though they are built with foundation commencing from some feet below the surface of the land, depreciation is admissible thereon. Hence, we see no reason why the roads which are built on the surface of the land could not be constituted as building so as to be entitled for depreciation. It is a matter of common knowledge that roads definitely depreciate. The extent of depreciation depends upon the nature of the roads, depending upon the material used for construction of roads such as concrete, black top, gravel or earth. Hence, we are of the opinion that depreciation can be allowed on roads and the direction given to the ITO to examine the nature of roads and grant depreciation in accordance with the I. T. Rules, is perfectly in order. Hence, we answer this in the affirmative and against the revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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