TMI Blog1995 (2) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... onsultants Pvt. Ltd. with regard to the installation of captive power station at its Jamshedpur factory. The claim was disallowed on the ground that it represented capital expenditure. 3. On appeal, it was contended on behalf of the assessee that due to erratic power supply, the production in Jamshedpur was being adversely affected with the result that the company had to pay the labour wages and overheads even for idle hours when there was no production. The company thought that if it had a captive power station in the factory, such a situation could be avoided. Since the feasibility of installing the captive power station had to be examined first, the company engaged M/s. Development Consultants Pvt. Ltd. and obtained from them a report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. [1994] 205 ITR 447 (Guj.) 4. CIT v. J.K. Chemicals Ltd. [1994] 207 ITR 985 (Bom.). It was argued on behalf of the department that had the captive power station been installed, it would have been a capital asset in the assessee's hands and, therefore, the expenses on feasibility report should also logically be treated as capital expenditure as forming part of the cost of the unit. 7. On a consideration of the rival contentions, we are of the view that the disallowance should be deleted and the expenditure should be allowed as revenue expenditure. We may straightway state that the judgments of the Calcutta High Court relied upon on behalf of the assessee before us are not applicable to the facts of the case and they are distingui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only because of frequent interruption in the power supply in the Jamshedpur factory which resulted in loss of production as well as payment to workers even for idle time. The object for which the feasibility report was prepared must be viewed in this broader context. in the judgment of the Bombay High Court relied upon by the ld. D.R. the project report was in respect of setting up a new unit for manufacture of a more concentrated type of fertiliser.In that case the assessee was engaged in the manufacture of fertilisers. On these facts, the Bombay High Court held that the expenditure on the project report was capital expenditure. The High Court held that there was an enduring benefit to the assessee inasmuch as the expenditure was incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iciently or more profitably while leaving the fixed capital untouched, the expenditure would be revenue expenditure, even though the advantage may endure for an indefinite future. The Supreme Court cautioned that the test of enduring benefit is not a conclusive test and should not be applied blindly or mechanically without regard for the particular facts of a given case.These observations apply to the expenditure concerned in the present case. It must be remembered that the feasibility report by itself does not bring into existence the captive power plant. It merely tells the assessee whether a captive power plant can be installed or not. The cost of the power plant would undoubtedly be capital expenditure but it does not logically follow t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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