ivil Appeal No 512 NT of 1975
From the Judgment and Order dated 15111973 of the Bombay High Court in Income Tax Reference No 15 of 1964
SC Manchanda KC Dua and Ms A Subhashini for the Appellant
Harish Salve Mrs AK Verma and DN Misra for the Respondents
The Judgment of the Court was delivered by KANIA J
This is an appeal on a certificate given under Section 66Aii of the Indian Income tax Act 1922 against a judgment and order of a Division Bench of the Bombay High Court
The appeal is preferred by the Commissioner of Income tax and the assessee the Associated Cement Companies Ltd is the respondent
The judgment against which the appeal is directed was rendered on a reference under Section 661 of the Indian Income tax Act 1922
The question referred to the Court for consideration was as follows Whether on the facts and in the circumstances of the case the expenditure of Rs209459 or any portion thereof incurred by the company in the accounting period relevant to the assessment period 1959 60 was allowable as deduction in determining the profits of the company for the assessment year 1959 60 The relevant facts are as follows The assessee the Associated Cement Companies Ltd has a chain of factories manufacturing cement all over the country
The assessment year in question is the year 1959 60 and the corresponding previous year was ended on 31st July 1958
One of the factories of the assessee was situated at Shahabad which is now in the State of Karnataka but was at the relevant time forming part of the then State 920 of Hyderabad
In September 1956 the Government of Hyderabad had decided to include the area on which the said factory at Shahabad was situated within the municipal limits of the Shahabad Town Municipality
A tripartite agreement between the Government of Hyderabad the assessee company and the Municipality was arrived at on 30th October 1956 between the aforesaid three parties
Under the agreement the assessee undertook to supply water to the Shahabad town and village
It further agreed to put up a high tension electric transmission line and to supply electricity for the street lighting of the Shahabad town
It also agreed to concrete free of charge the existing main road from the factory upto the railway station via the main bazar
During the relevant previous year the only work done was with respect to provision of water supply to the said town and village
Under the agreement the assessee initially agreed to supply certain quantity of water to the Shahabad town at a concessional rate and for the purpose of such supply the assessee company was to undertake and complete at its own cost the water supply scheme for the town and village involving laying of the main water pipelines
The assessee company was to be the owner of the pipelines installations and other accessories pertaining to the water supply lying within the company s premises and on the land a little outside the premises
The Shahabad Municipal Committee was to take over possession of the remaining pipelines installations and accessories and it was declared to be the owner thereof
These pipelines installations etc
had to be maintained by the Minicipal Committee in future
Under Clause 23 in consideration of the assessee company having agreed to provide these amenities supply and services the Govt
of Hyderabad undertook not to include any of the properties of the company comprising the cement factory the main workshop the housing colony quarries and the limestone bearing lands within the limits of the Shahabad Minicipality or the village panchayat or like body for a period of fifteen years from the date of the agreement
According to the assessee a sum of Rs209459 was spent during the year of account under this agreement and this amount pertained to the laying of pipelines installations and accessories of which the Shahabad Municipality became the owner under the agreement and this amount was claimed as a deduction
The Income tax officer disallowed this amount holding that it was a capital expenditure on the basis that as a result of this expenditure the company derived an advantage of an enduring nature namely that it would not have to pay municipal taxes for a period of fifteen years
On an appeal by the Company the Appellate Asstt
Commissioner allowed the deduction 921 holding that the amount was the payment of a composite sum of the revenue outgoings for the following 15 years
The Revenue preferred an appeal to the Income tax Appellate Tribunal
The Income tax Appellate Tribunal passed an order directing the Income tax officer to scrutinize the expenditure and allowed the deduction of the expenditure to the extent that it did not result in the company becoming the owner of any asset
Before the High Court it was contended on behalf of the company that the entire amount of Rs209459 pertained to expenditure on pipelines installations and other accessories which under the agreement came to ownership of the Shahabad Town Municipality and did not pertain to any increase of the assets of the company
The Division Bench which decided the reference has pointed out that it had not been disputed by the Revenue before the Tribunal that the entire expenditure concerned was laid out for the purpose of business and the only question was whether it was capital expenditure or revenue expenditure
The only ground on which the claim of the assessee for deduction of the said expenditure under Section 102 xv of the Indian Income tax Act was resisted that it was capital expenditure
After exhaustively considering several decisions of the Supreme Court and several English decisions the Division Bench of the Bombay High Court came to the conclusion that the expenditure in question was revenue expenditure and was liable to be allowed as deduction
On the basis of these conclusions the Bombay High Court decided the question referred in their affirmative and in favour of the assessee
In the judgment appealed against the learned Judges have referred to the dictum of Viscount Cave LC in Atherton vs British Insulated and Helsby Cables Ltd 1924 10 Tax Cases 155 192 which runs as follows But 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
I think that 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 The Division Bench further pointed out that this dictum was stated with approval by this Court in Assam Bengal Cement Co Ltd vs Commissioner of Income tax where this 922 Court inter alia approved the decision of a Full Bench of the Lahore High Court in Banarasidas Jagannath in re FB holding that expenditure may be treated as properly attributable to capital when it is made not only once and for all but with a view to bringing into existence an asset or an advantage for enduring benefit of the trade
If on the other hand what is got rid of by lump sum payment is an annual business expense chargeable against revenue the lump sum payment should equally be regarded as a business expenses but if the lump sum payment brings in a capital asset then that puts the business on another footing altogether
The Division Bench also took into account the fact that the assessee was already running a cement factory at Shahabad and it was not as if the expenditure incurred was in connection with starting of a new business
Mr Manchanda learned counsel for the appellant has raised only two contentions before us
The first contention was that since as a result of the expenditure incurred certain water pipelines were laid which could be regarded as capital assets the expenditure could only be regarded as capital expenditure
In our view there is no substance in this contention
It is true that certain water supply lines did come to be laid as a result of the expenditure incurred but the facts on records which we have referred to above clearly show that these water pipelines on which the expenditure in question was incurred were not assets of the assessee but assets of the Shahabad Municipality and hence it was not as if the expenditure resulted in bringing into existence any capital asset for the company
The only advantage derived by the assessee by incurring the expenditure was that it obtained an absolution or immunity under normal conditions from levy of certain municipal rates and taxes and charges
In view of this the first contention of Mr Manchanda must be rejected
The next submission made by Mr Manchanda was that the advantage of not being liable to pay municipal rates taxes etc
which the assessee company secured by reason of making the expenditure in question was for a period of fifteen years and hence it could be said to be an advantage of an enduring nature so that the expenditure incurred in acquiring the same would be regarded as capital expenditure
In our view it is difficult to accept this submission either
As observed by the Supreme Court in the decision in Empire Jute Co Ltd vs Commissioner of Incometax 1980 124 ITR SC p 1 that there may be cases where expenditure even if incurred for obtaining an advantage of enduring benefit may none 923 the less be on revenue account and the test of enduring benefit may break down
It is not every advantage of enduring nature acquired by an assessee that brings the case within the principles laid down in this test
What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test
If the advantage consists merely in facilitating the assessee s trading operations or enabling the management and conduct of the assessee s business to be carried on more effectively or more profitably while leaving the fixed capital untouched the expenditure would be on revenue account even though the advantage may endure for an indefinite future
In that case the appellant a company carrying on the business of manufacture of jute was a member of the Indian Jute Mills Association which was formed with the objects inter alia of protecting the trade of its members including imposing restrictive conditions on the conduct of the trade and adjusting the production of the mills of its members
A working time agreement was entered into between the members restricting the number of working hours per week for which the mills were entitled to work their looms
Clause 4 of the working time agreement provided that no signatory shall work for more than 45 hours per week
Clause 6b provided that the signatories shall be entitled to transfer in part or wholly their allotment of hours of work per week to any one or more of the other signatories
Under this clause the appellant purchased looms hours from four other mills for the aggregate sum of Rs203255 during the previous year relevant to the assessment year 1960 61 and claimed to deduct that amount as revenue expenditure
The Tribunal held that the expenditure incurred by the appellant was revenue in nature and hence deductible in computing the appellant s profits
The High Court reversed this decision but on appeal the Supreme Court allowed expenditure as deductible expenditure on the basis of the principle set out earlier
If this principle is applied to the facts of the case before us what we find is that the advantage which was secured by the assessee by making the expenditure in question was the securing of absolution or immunity from liability to pay municipal rates and taxes under normal conditions for a period of fifteen years
If these liabilities had to be paid the payments would have been on revenue account and hence the advantage secured was in the field of revenue and not capital
As a result of the expenditure incurred there was no addition to the capital assets of the assessee company and no change in its capital structure
The pipelines etc
which might have been regarded as capital assets and which came into existence as a result of the expenditure incurred did not belong to the assessee company but to the municipality
In these circumstances 924 applying the principles laid down in Empire Jute Co s case the expenditure is clearly liable to be allowed as deductible from the profits under Section 102 xv of the Indian Income tax Act
In the result the appeal fails and is dismissed with costs
SL Appeal dismissed


Summary:
The Industrial Court Bombay awarded bonus equal to 4 12 months  wages to the operatives of the Tata Mills Ltd and directed that those operatives who were no longer in the service of the Mills should be paid the bonus in one lump sum by a fixed date and in such cases claims in writing should be made to the Manager of the Mills
The operatives who made a claim before the date fixed were duly paid but payment was refused to operatives who applied after that date
The operatives who had been refused payment made applications to the Authority under the Payment of Wages Act
The Mills contended that the Authority had no jurisdiction to entertain the application but the contention was rejected
The Mills filed a writ petition before the Bombay High Court which was dismissed by a Single judge and an appeal against that decision was also dismissed by a Division Bench Held that the bonus awarded by the Industrial Court was not wages within the meaning of section 2Vi of the Payment of Wages Act and as such the Authority had no jurisdiction to entertain the applications made to it under section I5 of the Act
Though such bonus was remuneration it was not remuneration payable on the fulfilment of the terms of the contract of employment express or implied as required by section 2vi
F W Heilgers  Co vs N C Chakravarthi 1949 FCR 356 followed