JUDGMENT [ENTITY], J.
Appeal is heard on merit, as requested by both the learned counsel.
2. The substantial questions of law which have been raised by the revenue in this case read as under :-
" 1. Whether on the facts and in the circumstances of the case the Tribunal was justified in allowing the expenditure of Rs. 2,16,000 incurred for construction of Manikyalal Verma Rajkiya Textile Institute as revenue expenditure, following its earlier order in [CASE NUMBER]/Jp/1992 in assessee's case for assessment year 1987-88 ignoring the fact that
i. admittedly the expenditure is on construction of building and [SECTION] do not provide for deduction of expenditure of capital nature.
ii. transfer of a capital assets cannot be construed to mean that capital nature into revenue and the reference to accrual of a benefit of enduring nature is quite irrelevant and in fact superfluous.
iii. the provisions of [SECTION] expressly excludes the allowability of capital expenditure even though wholly and exclusively laid out of or expended for the purpose of business."
2. Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in law to come to the conclusion that the expenditure on construction of Textile Institute building was a business expenditure allowable as revenue expenditure when the facts that the assessee got a permanent right to nominate its employee for training in further years was not controverted by the assessee ?"
3. As the questions suggested that the decision of the Tribunal is founded on its earlier decision for the assessment year 1987-88 in the case of very same assessee and the case of said assessment year as well as other assessment years have also been made subject matter of appeal under [SECTION] before this court. Since detail reason of the Tribunal are in the order passed in the appeal arising out of assessment for the assessment year 1987-88 and the said appeal is also before us, we refer the facts as emerging from the assessment year 1987-88.
The facts on which this claim has been made and considered has been narrated by the CIT (Appeals) in his appellate order for the assessment year 1987-88.
4. The assessee company is engaged in the business of manufacturing of different kinds of synthetic yarn and fabrics at Gulabpura, District Bhilwara. The assessee company was desirous of setting up an Institution in textile technology and to train persons so that the mill can get skilled technical personnels at Gulabpura which was otherwise a remote place. The Rajasthan Government proposed to set up a modern training institute. For the purpose, the State Government agreed to allot land for setting up the institute free of cost and the assessee company was to construct the required building thereon at its own cost. The following terms and conditions of the agreement, were spelled out under the agreement dated 2-1-1987:-
1. Sh. [ENTITY] with Monogram of Mill.
2. A stone slab would be fixed on main building stating the building was constructed by mill.
3. The building would be made available to the government by handing over the same.
4. Government shall meet all recurring expenses, equipments and machines to be installed at the said institution.
5. Government shall conduct such diploma courses to students in textile technology at mutually agreed between mill and government.
6. Circulars and syllabus for the course relating to the workers training programme in textile, shall be finalised in consultation with the mill.
7. The mill shall nominate upto 10 worker students and 2 diploma students in each working session.
8. The advisory committee shall consist of 2 members appointed by the mill As per the said agreement on the land provided by the State, for the purpose the assessee raised construction of the building. The construction cost was incurred spreading over several assessment years. During the assessment year 1987-88 Rs. 15,05,007 were spent and during the relevant assessment year under appeal that is to say assessment year 1990-91 Rs. 2,16,000 were spent. The assessee claimed these expenses for each year as revenue expenses to be deducted as business expenditure in computing the taxable income.
5. However, the assessing officer has held the expenditure to be capital in nature and disallowed the same. The Commissioner (Appeals) affirmed the disallowance.
6. The Tribunal in its common judgment following its earlier decision for the assessment years 1986-87 and 1987-88 and referring to the decision of the Supreme Court in [PRECEDENT] and of the Bombay High Court in [PRECEDENT] allowed the expenses as revenue expenses.
This controversy is governed by the two questions referred to above.
7. We may notice here that for the assessment year 1986-87, the like question was decided against the revenue and the application under [SECTION] was made for making reference of number of questions of law said to be arising out of the said order of this court under [SECTION] of the Act. However, the question relating to the aforesaid controversy was not referred to the Court. The only question that was referred to this court in proceedings for the assessment year 1986-87 was about guest house expenses and no application under [SECTION] appears to have been made for referring the above question to this Court. Accordingly, for the assessment year 1986-87 the allowance under [SECTION] regarding the expenses incurred for construction of Manakyalal Verma Rajkiya Textile Institute, Bhilwara became final.
8. For assessment year 1987-88 also, the Tribunal refused to refer the said question to this court and application under [SECTION] is pending consideration before this court.
9. Learned counsel for the revenue has urged that since the amount was spent for constructing the building which was an asset of enduring nature and existing and the same was handed over to the State Government and further it was not being exclusively for the purpose of assessee's own business, the expenses could not be treated to be the wholly and exclusively incurred for the assessee's business. Since it was the money which was spent for setting up the Institution, it must be deemed to be a capital expense and cannot be allowed as a revenue expenditure.
10. The learned counsel for the assessee contended that undoubtedly the building has been raised but no capital assets of enduring nature to the trade of the assessee has been brought into existence. He was motivated for incurring this expenditure in constructing the said building for setting up an institute for the benefit of his business for training the textile workers, which benefit were also to flow to his business by getting his own workers trained in textile technology, which in turn raised their efficiency and productivity. Expenses incurred were wholly and exclusively for the assessee's business and were rightly allowed by the Tribunal as deduction. Number of cases were referred, to which, we shall presently advert to.
11. In [PRECEDENT], the question arose before the Supreme Court was about the contribution made by the [PRECEDENT] to a school for training of Indian boys as jockeys. During the year ending 31-3-1949, the Turf Club spent a sum of Rs. 62,818 on the running of the school and claimed that amount as a deduction under [SECTION] of the [ACT]. [SECTION] is a corresponding provision to [SECTION] of the [ACT]. The court concluded by holding the expenses to be revenue expenditure that the amount spent by the turf club was not in the nature of a capital expense because no asset of enduring nature was created thereby and that the amount was spent for the preservation of its business, it was laid out wholly and exclusively for the purpose of the business of the turf club and was an allowable deduction under [SECTION] of the [ACT].
12. In [PRECEDENT] the Supreme Court was considering the case in which the appellant coming before the Supreme Court contributed amounts for the construction and development of roads between the various sugarcane-producing centres and the sugar factories of the assessee. This expenditure was incurred under a statutory obligation for the development of roads which were originally the property of the Government and remained so even after the improvement had been done. The court found in context of the purpose for which the roads were laid and expenses were incurred by the assessee for such roads that the expenditure was not of a capital nature and had to be allowed as an admissible deduction in computing the profit of the assessee's business. The expenditure was incurred for the purpose of facilitating the running of its motor vehicles and other means employed for transportation of sugarcane to its factories and was therefore incurred for running the business or working it with a view to producing profits without the assessee gaining any advantage of an enduring benefit to itself as the road remained the property of the State and were otherwise used by general public also.
13. In [PRECEDENT], it was a case in which the assessee became a party to a tripartite agreement whereby the assessee undertook to supply water to the municipality and provide water pipelines, for that purpose the assessee was not to pay. The pipelines so provided became the property of the municipality. The question arose whether the amount spent to install water pipeline and accessories was revenue expenditure for the assessee or capital lay out. It was held that during the previous year relevant to the assessment year 1959-60, the respondent spent a sum of Rs. 2,09,459 towards installing water pipelines and accessories outside the factory premises which were belong to and be maintained by the municipality. The Tribunal held that the assessee did not become owner of the pipeline and accessories installed by him and entire expenditure was allowable as revenue expenditure. On a reference, the High Court affirmed that since the installation of pipeline and accessories were the assets of the municipality and not of the respondent, the expenditure did not result in bringing into existence any capital asset for the company and the advantage secured by the respondent by incurring the expenditure was absolution or immunity from liability to pay municipal rates or taxes for a period of 15 years, if these liabilities had to be paid, the payments would have been on revenue account, and, therefore, the advantage secured was in the field of revenue and not capital. Consequently, the expenditure was deductible under [SECTION] of the [ACT], in computing the respondent's business profits. The Supreme Court affirmed these conclusions.
It may be noticed that notwithstanding an asset of enduring nature in the form of installed pipelines did come into existence, but the asset did not become an asset of the assessee. This was the reason that prevailed to conclude that no capital asset was acquired by the assessee by laying the expenses. But since the purpose was to acquire an advantage or benefit to business of the assessee, the expenses were held to be of revenue in nature and business expenditure.
14. In [PRECEDENT] the Supreme Court was concerned with the question whether the amount spent by the assessee company for securing construction of tenements for the company's workers through the State Housing Board was a business expenditure of revenue nature which could be allowed as deduction under [SECTION] of the [ACT]. The assessee company acquired no ownership rights in the said tenements. The Tribunal held that the expenses incurred for constructing the tenement for its workers through the State Housing Board, in which the assessee did not acquire any property interest, did not result in acquiring any capital asset by the assessee and since it was spent for the welfare of its workers it was a revenue expenditure and allowable under [SECTION]. A reference of this question was declined by the Tribunal. The High Court declined an application under [SECTION] holding that no question of law arose. The Supreme Court referring to its earlier decision in [PRECEDENT] and another decision in [PRECEDENT] held that the High Court was justified in rejecting the application under [SECTION] of the [ACT]. It was noticed by the Supreme Court that [PRECEDENT]'s case (supra) was one in which certain expenditure was incurred towards part of the cost of the construction of roads in the area around the factory and it was held to be business expenditure of revenue nature and in the case of [PRECEDENT]'s case (supra), the amount advanced by the assessee for construction of houses under a subsidised housing scheme for welfare of its employees was in the nature of revenue expenditure.
15. In [PRECEDENT] the Supreme Court recorded its agreement with principles laid down in [PRECEDENT]'s case (supra), [PRECEDENT]'s case (supra), [PRECEDENT]'s case (supra). The principle was applied in a case where the assessee obtained certain premises for a period of 39 years. Under terms of agreement he was entitled to demolish the construction of the leased premises and reconstruct the premises for its own business requirement. On construction of such premises, it was to become the property of the lessor and the assessee was to pay the rent at reduced rate as detailed in the lease agreement. The assessee raised the new building at its own cost and was running business in the said building as lessee. The revenue has disallowed the claim of the assessee for deduction of the amount for reconstructing the building by holding it to be a capital lay out. However, the Tribunal found in favour of the assessee that since the assessee has acquired no interest by way of ownership right in newly constructed building, as under the lease agreement, it was to become property of the lessor. The amount spent by him for constructing the building must be held to be revenue expenditure as a part of a total lease money to be paid by him by a different mode. The High Court affirmed the finding of the Tribunal. The Supreme Court on appeal by the revenue while dismissing the appeal held that by spending his money, the assessee did not acquire any capital asset. The only advantage which the assessee derived by spending the money was that it got the lease of a new building at a low rent. From the business point of view, therefore, the assessee got the benefit of reduced rent, The High Court had, therefore, rightly considered this as obtaining a business advantage. The expenditure was, therefore, to be treated as revenue expenditure.
16. From the aforesaid judgments of the Supreme Court, it is apparent that merely because the amount spent has been used for construction of a building or structure of permanent nature is not the decisive test for holding the expenses to be capital out-lay or revenue out-lay. The two tests emerging from the aforesaid decisions are that firstly where the building or construction of any permanent structure is brought into existence is by itself not sufficient to hold the expenses to be capital nature invariably. Where such construction does not result in acquisition of any capital assets to be trade of assessee or the property does not become the property of the assessee, it does result in acquisition of capital assets of the enduring nature by the assessee. Secondly, it is also clearly discernible that if such expenses is incurred for the purpose of business for deriving any benefit whether to preserve the business or to facilitate the running of the business more smoothly or to make business more profitable or to secure any other advantage for the assessee's business or incurring expenditure by seeking exemption from or reduction in incurring of other expenses which would have been ordinarily allowable as revenue expenditure of assessee's business, such expenses are to be treated as having been incurred wholly and exclusively for business of the assessee and revenue expenditure. Such expenses cannot be construed as a capital expenses.
17. It may be noticed that in all the aforesaid cases, the construction of permanent nature has been brought into existence at the expenses of assessee whether by laying roads, or construction of tenement for its workman or laying of water pipelines for the benefit of securing absolution from payment of rates for 15 years or for setting up and running a training school of jockeying for the Indian boys by [PRECEDENT], or by constructing a new building by demolishing old building, with reduction in lease monthly, the expenses have been held to be of revenue nature because the property did not vest in the person who had laid out the expenses and the expenses were motivated for the benefit of smooth carrying on of its business activity.
In this connection, we may also refer to certain decision of other High Court where the question has received consideration.
18. In [PRECEDENT], the Madras High Court was called upon to consider the case in which the assessee company purchased land in the name of District Collector, Madurai for the purpose of constructing houses for the company's workers by the Government under the subsidised industrial housing scheme sponsored by the State Government. The purchase price of the land was claimed to be revenue expenditure as deduction under [SECTION] of the [ACT] as the case related to year 1958-59. The departmental authorities rejected the case of assessee but the Tribunal upheld the claim on the ground that the expenditure was. incurred wholly and exclusively for the put-pose of the business of the assessee and the assessee had not acquired any capital asset of enduring nature nor had any enduring benefit accrued to the assessee by the purchase. The High Court reasoned that as the assessee-company would not have any interest in the buildings to be built on the land and their obligation would be over by contributing their share towards the scheme, it cannot be said that the assessee-company in spending the money to acquire or bring into existence any advantage for the enduring benefit of the business but the expenditure was incurred more as a matter of commercial expediency in pursuance of an agreement and the amount in question was a permissible deduction as a revenue expenditure incurred wholly and exclusively for the purpose of the assessee's business and hence, allowable as a deduction. The emphasis was laid that the assessee company did not itself acquire any capital assets.
19. On appeal, the Supreme Court affirmed the judgment of the High Court in [PRECEDENT]'s case (supra) with further observation that the fact that the scheme is not temporary or for a particular duration made little difference to the expenditure. The answer appears to be so apparent that it was disposed of by a short order which reads as under:-
" The land has been purchased in the name of the Government and the assessee is not the owner thereof. The assessee is only contributing a portion of the construction costs. it is a subsidised welfare scheme. The fact that the scheme is not for any temporary or particular duration makes, in our opinion, little difference to the nature of the expenditure. The Tribunal, in our opinion, is justified in holding that the amount spent is only revenue expenditure " (p. 277)
20. [PRECEDENT] is a case in which the assessee had constructed a school building and it was handed over to the municipality to be run as school for the benefit of children of the employees of the assessee. The expenses were held to be revenue expenditure allowable under [SECTION] of the Act of 1922.
21. The Orissa High Court in [PRECEDENT] held that the amount donated for construction of a primary health centre as business expenditure. As per the finding recorded by the Tribunal, the property of the primary health centre was of Government. The assessee had made the contribution in consideration of the fact that the health centre was located near its factory premises and would provide treatment to its ailing workmen. Under the [ACT] the assessee had an obligation to maintain a hospital or meet the expenses on medical treatment of its workers. In view of the overall situation the Tribunal recorded the finding that the amount contributed was business expenditure.
With the aforesaid decision we also notice the principle which is pivotal for deciding the case whether an expenditure is of capital nature or revenue nature. Merely obtaining an advantage of benefit is not an unbreakable rule.
22. The principle was considered by the Supreme Court in [PRECEDENT]. In the said case, the court observed that there may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit may none 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 principle 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 consist merely in facilitating the assessee's trading operations or in enabling the management in conduct of the assessee's business to be carried on more efficiently 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. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case.
The test of acquisition of capital asset was referable to acquisition of such asset to the trade and not de hors its ownership vesting in the trade of the assessee or in the assessee. In the present case, there is no dispute on the point that the assessee did not acquire any capital asset for his trade or himself.
Even the test of acquiring enduring benefit was held to be not applicable where such acquisition does not result in expansion of profit-making apparatus of the assessee. The case of [PRECEDENT] (supra) was the case in which the assessee by incurring the disputed expenses purchased the loom hours resulting in increased loom hours for the assessee during the currency of contract period, which was to augment production and productivity of assessee per loom.
Even applying the test of enduring benefit, the Supreme Court held it to be a revenue expenditure. It was considered that by purchase of loom hours, no new asset was created. There was no expansion of the profit making apparatus of the assessee. The income earning machine remained the same as it was prior to the purchase of loom hours.
23. In the present case also, by increasing expenditure for construction of building for the Institute, the profit-making apparatus of the assessee was not expanded. Its income earning machinery remained the same. Assessee has, by contributing to construction of building, only facilitated the training of his workers at hand without necessitating their training at distant place causing more expense of time and money. Therefore, it cannot be said that assessee acquired any enduring benefit in the capital field. Therefore, the test of enduring benefit also cannot help the revenue in the case at hand. As it was a benefit which was only to run business of the assessee more efficiently by getting his workmen trained the ratio in [PRECEDENT]'s case (supra) clearly applies to it.
24. The decision of the Supreme Court in [PRECEDENT] (supra) is also pointer to this conclusion. In the [PRECEDENT]'s case (supra) the Supreme Court has held that the expenditure incurred for training the Indian boys as jockeys was not expenditure in the nature of capital but was a revenue expenditure, therefore, the benefit which the assessee deriving dwells in future. The court observed as under:
" the conclusion is that the amount in dispute was laid out wholly and exclusively for the purpose of the respondent's business because if the supply of jockeys of efficiency and skill failed the business of the respondent would no longer be possible. Thus, the money was spent for the preservation of the respondent's business." (p. 420) By laying out the expenditure for bringing into existence a building to be owned by the State and to be run by the State for the benefit of the industry for the purpose of training its workmen was clearly related to the running of the business of the assessee more efficiently and smoothly by securing the assessee's workmen trained, skilled and efficient.
25. We have no hesitation in coming to the conclusion that in the facts and circumstances which exist in the case, the expenses incurred by the assessee towards construction of the building for [ENTITY]. Verma Textile Institute, Bhilwara were expenses wholly and exclusively incurred for the purpose of business of the assessee and was not in the nature of capital expenditure. therefore, the same is allowable as revenue expenses under [SECTION] of the [ACT]. The Tribunal was justified in reaching this conclusion. No interference can be made on this count.
26. Accordingly, the appeal fails and is hereby dismissed. No costs.