Appeal No 265 of 1972
From the Judgment and Order dated the 24th August 1971 of the Kerala High Court in ITRNo
25 of 1969
GB Pai KJ John for Ms Dadabhanji  Co for the Appel lant
BB Ahuja and RN Sachthey for Respondent
The Judgment of the Court was delivered by GUPTA J
The question for decision in this case is whether the money contributed by the assessee public limit ed company for the construction of a new road in the area where its factory is located to improve transport facilities is capital expenditure or revenue expenditure
The assess ment year in question is 196465 the relevant accounting period being the financial year ended March 31 1964
The assessee company is engaged in the manufacture of chemicals it had been receiving and despatching materials required for and produced in its factory through lorries
The assessee along with three 716 other public undertaking approached the Government of Kerala for laying a new road from kalamasseri to Udyogamanndal this area where the assessee s factory is situate was not at the material tune served by pucca roads
It was agreed that the Government of Kerala would bear the cost of the acquisition of the land and 25 per cent of the cost of construction
The total cost to be shared by the four companies was Rs 104550 and the assessee s share came to Rs 26100 
The assessee company sought to deduct this amount from its total income caiming this as revenue expenditure for the year in question
The Income tax Officer disallowed the claim holding that the assessee s contribution was capital expenditure
The Appellate As sistant Commissioner took the same view
The Appellate Tribunal mainly relying on the decision of the Calcutta High Court in Commissioner of Income tax vs Hindustan Motors Limited1 held that the assessee was entitled to deduct the amount as revenue expenditure
At the instance of the Commissioner of Income tax Kerala Ernakulam the Tribunal referred the following question to the High Court of Kerala under section 2561 of the Income Tax Act1961 Whether on the facts and in the circum stances of the case the Appellate Tribunal was legally justified in allowing the expendi ture of Rs 26100 being the respondent s contribution to government for constructing a road as a permissible deduction under section 371 0f the Income Tax Act 1961 The High Court held that the assessee in this case ob tained an advantage of an enduring nature by the construc tion of the road and therefore the amount contributed was capital expenditure
The High Court accordingly answered the question in negative and against the assessee
In this appeal brought on a certificate under section 261 of the Income Tax Act 1961 the assessee challenges the correct ness of the answer given by the High Court to the question
The authorities both in this country and in England have pointed out the difficulties in formulating precise rules for distinguishing capital expenditure from revenue expendi ture
The line of demarcation has been found to be very thin
Certain broad tests have however been laid down and of them the test suggested by viscount Cave L C in Atherton vs British Insulated and Helsby Cables Limited2 appears to have been largely accepted in this country
This Court in Assam Bengal Cement Company Limited vs Commis sioner of Income tax West Begnal3 Sitalpur Sugar Works Limited vs Commissioner of Income tax Bihar and Orissa  and a number of other decisions has adopted the test as laid down in Atherton s case to refer again to these often quoted lines from Viscount Cave s Judgment when an expendi ture is made   with a view to bringing into existence an asset or an advantage for the enduring benefit of a 1 2 1925 10 Tax Cases 155
3 4 717 trade I think that there is very good reason in the ab sence of special circumstances leading to an opposite con clusion for treating such an expenditure as properly at tributable not to revenue but to capital
Referring to Atherton s case and certain other authorities on the dis tinction between capital expenditure and revenue expenditure and the tests to be applied this Court in Assam Bengal Cement Company Limited vs Commissioner of Income tax1 observed 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
If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital of the income of the concern or whether tire payment was made once and for all or was made periodically
The aim and object of the expenditure would determine the character of the expenditure whether it is a capital ex penditure or a revenue expenditure
The source or the manner of the payment would then be of no consequence
It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital
If it was part of the fixed capital of the business it would be of the nature of capital expenditure and if it was part of its circu lating capital it would be of the nature of revenue expenditure
 In the case before us the High Court applied viscount Cave s test and found that the expenditure made by the assessee brought into existence an advantage for the endur ing benefit of the assessee s trade and accordingly held that this was capital expenditure
Each case turns on its own facts
It is not disputed here that the correct test has been applied
Did the money spent by the assessee on construction of the new road secure for it an enduring benefit or was it necessary for running its business On the facts of the case the position seems to be clear enough not to merit an elaborate consideration that by having the new road constructed for the improvement of transport facilities the assessee acquired an enduring advantage for its business The High Court rightly pointed out that the decision of the Calcutta High Court in Commis sioner of Income tax vs Hindustan Motors Ltd2 on which the appellate tribunal relied is clearly distinguishable on facts that was a case where the expenditure incurred was for repair of an existing road which is different from the case where a new road is laid out for the purpose of the assessee s 1 2 196868 ITR 301
718 business
Mr Pai learned counsel for the appellant has relied on the decision of this CoUrt in Lakshmiji Sugar Mills Company Private Limited vs Commissioner of Income tax New Delhi1 to contend that even the expenditure on the construction of roads could be revenue expenditure and not expenditure of a capital nature
In Lakshmiji Sugar Mills case the assessee was a private limited company carrying on the business of manufacture and sale of sugar
Under the provisions of the UP Sugarcane Regulation of Supply and Purchase Act 1953 the assessee company was obliged to contribute certain amounts for the development of roads which were originally the property of the government and remained so even after the improvement had been made
Apart from the fact that in this case the expenditure incurred was under a statutory compulsion there was no finding that the roads were newly made
On the facts of that case this Court was satisfied that the development of the roads was meant for facilitating the carrying on of the assessee s business
Lakshmiji Sugar Mills1 case is quite different on facts from the one before us and must be con fined to the peculiar facts of that case
On the facts of the instant case we have no doubt that the expenditure incurred by the assessee was of a capital nature
The appeal accordingly fails and is dismissed but in the circumstances of the case without any order as to costs


Summary:
The appellant assessee is a public limited company who spent Rs26100 for the construction of a new road for improving transport facilities in the area where its factory is located and sought to deduct this amount from its total income claiming this as revenue expenditure for the year
The claim was disallowed by the Income tax Officer and the Appellate Assistant Commissioner
The Appellate Tribunal held that the amount could be deducted as revenue expendi ture but at the instance of the respondent referred the matter to the High Court under section 2561 of the Income Tax Act 1961 where it was decided against the appellant
Dismissing the appeal the Court HELD The line of demarcation between capital expendi ture and revenue expenditure has been found to be very thin
According to the test suggested in Atherton s case by Vis count Cave LC by having the new road constructed for the improvement of transport facilities the assessee acquired an enduring advantage for its business
The expenditure incurred was therefore of a capital nature
F II  718 D Atherton vs British Insulated and Helsby Cables Ltd 1925 10 Tax Cases 155 Assam Bengal Cement Co Ltd vs Commissioner of Income Tax West Bengal and Sitalpur Sugar Works Ltd vs Commissioner of Income Tax
Bihar and Orissa  applied
Commissioner of Income tax vs Hindustan Motors Ltd and Lakshmiji Sugar Mills Co P Ltd vs Commissioner of Income tax New Delhi  distinguished