Case: Commissioner of Income-Tax, Panaji, Goa Vs. Hede Consultancy Private Limited &amp; Another

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 expenditure was, therefore, treated as revenue expenditure. 12.The Apex Court while dealing with the said question also laid down the general principles applicable in determining whether expenditure is capital or revenue expenditure. They are as under:"The general principles applicable in determining whether a particular expenditure is capital or revenue expenditure are as follows: (1) Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment; (2) 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 the enduring benefit of a trade. If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether; (3) Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital." 13.The Apex Court while dealing with this question relied on the following cases:(i) Lakshmiji Sugar Mills co. P. Ltd. vs. CIT, (1971) 82 ITR 376 (SC); wherein the assessee company was carrying on business of manufacture and sale of sugar. It paid to the Cane Development Council certain amounts by way of contribution for the construction and development of roads between the various sugarcane-producing centers and the sugar factories of the assessee. The road remained the property of the Government. The Apex Court held that the expenditure was not of capital nature and had to be allowed as an admissible deduction in computing the profits of the assessees business. The expenditure was incurred for the purpose of facilitating the running of the assessees motor vehicles and other means employed for transportation of sugarcane to its factories. (ii) In the case of L.H. Sugar Factory and Oils Mills (P) Ltd. vs. CIT, (1980) 125 ITR 293 (SC), the assessee was carrying on the business of manufacture and sale of sugar. It had its factory in U.P. The assessee paid a contribution towards meeting the cost of construction of roads in the area around it factory under a sugarcane development scheme. The question was whether this amount was deductible in computing the assessees profits. The Apex Court held that it was, because although the advantage secured was of long duration, it was not an advantage in the capital field because no tangible or intangible asset was acquired by the assessee; nor was there any profit to or expansion of the profit-making apparatus of the assessee. The amount was contributed for the purpose of facilitating the business of the assessee and making it more efficient and profitable. It was, therefore, held to be expenditure of revenue nature. (iii) In another case CIT vs. Associated Cement Co. Ltd., (1988) 172 ITR 257 (SC), the respondent-company entered into an agreement to supply water to the municipality and provide water pipelines as also to supply electricity for street lighting and put up a transmission line for that purpose. The assessee also agreed to concrete the main road from the factory to the railway station. The amounts expended for these purposes were held to be revenue expenditure since the installations and accessories were the assets of the Municipality and not of the assessee. The expenditure, therefore was held to be not of capital nature. The advantage secured by the respondent was immunity from liability to pay municipal rates and taxes for a period of 15 years. The Apex Court said that had these liabilities been paid the payment would have been on revenue account. Therefore, the advantage secured was in the field of revenue and not capital. (iv) In the case.of CIT vs. Bombay Dyeing and Manufacturing Co. Ltd., (1996) 219 ITR 521 (SC), the company contributed to the State Housing Board certain amounts for construction of tenements for its workers. The tenements remained the property of the Housing Board. It was held that the expenditure was incurred wholly and exclusively on the welfare of the employees and, therefore, constituted legitimate business expenditure. As the assessee-company acquired no ownership rights in the tenements, the Apex Court said that the expenditure was incurred merely with a view to carry on the business of the company more efficiently by having a contented labour force. All these cases have looked upon expenditure which did bring about some kind of an enduring benefit to the company as a revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expenses have been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. As in the present case also since the assets created by spending the said amount did not belong to the assessee but the assessee got the business advantage of using modern business premises at a low rent, thus saving considerable revenue expenditure for a considerably long period, the Tribunal was perfectly justified in coming to the conclusion that the expenditure should be looked upon as revenue expenditure. No fault can be found with the findings recorded by the tribunal.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]13.The Apex Court while dealing with this question relied on the following cases:(i) Lakshmiji Sugar Mills co. P. Ltd. vs. CIT, (1971) 82 ITR 376 (SC); wherein the assessee company was carrying on business of manufacture and sale of sugar. It paid to the Cane Development Council certain amounts by way of contribution for the construction and development of roads between the variouscenters and the sugar factories of the assessee. The road remained the property of the Government. The Apex Court held that the expenditure was not of capital nature and had to be allowed as an admissible deduction in computing the profits of the assessees business. The expenditure was incurred for the purpose of facilitating the running of the assessees motor vehicles and other means employed for transportation of sugarcane to itsIn the case of L.H. Sugar Factory and Oils Mills (P) Ltd. vs. CIT, (1980) 125 ITR 293 (SC), the assessee was carrying on the business of manufacture and sale of sugar. It had its factory in U.P. The assessee paid a contribution towards meeting the cost of construction of roads in the area around it factory under a sugarcane development scheme. The question was whether this amount was deductible in computing the assessees profits. The Apex Court held that it was, because although the advantage secured was of long duration, it was not an advantage in the capital field because no tangible or intangible asset was acquired by the assessee; nor was there any profit to or expansion of theapparatus of the assessee. The amount was contributed for the purpose of facilitating the business of the assessee and making it more efficient and profitable. It was, therefore, held to be expenditure of revenueIn another case CIT vs. Associated Cement Co. Ltd., (1988) 172 ITR 257 (SC), theentered into an agreement to supply water to the municipality and provide water pipelines as also to supply electricity for street lighting and put up a transmission line for that purpose. The assessee also agreed to concrete the main road from the factory to the railway station. The amounts expended for these purposes were held to be revenue expenditure since the installations and accessories were the assets of the Municipality and not of the assessee. The expenditure, therefore was held to be not of capital nature. The advantage secured by the respondent was immunity from liability to pay municipal rates and taxes for a period of 15 years. The Apex Court said that had these liabilities been paid the payment would have been on revenue account. Therefore, the advantage secured was in the field of revenue and notIn the case.of CIT vs. Bombay Dyeing and Manufacturing Co. Ltd., (1996) 219 ITR 521 (SC), the company contributed to the State Housing Board certain amounts for construction of tenements for its workers. The tenements remained the property of the Housing Board. It was held that the expenditure was incurred wholly and exclusively on the welfare of the employees and, therefore, constituted legitimate business expenditure. As theacquired no ownership rights in the tenements, the Apex Court said that the expenditure was incurred merely with a view to carry on the business of the company more efficiently by having a contented labourthese cases have looked upon expenditure which did bring about some kind of an enduring benefit to the company as a revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expenses have been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. As in the present case also since the assets created by spending the said amount did not belong to the assessee but the assessee got the business advantage of using modern business premises at a low rent, thus saving considerable revenue expenditure for a considerably long period, the Tribunal was perfectly justified in coming to the conclusion that the expenditure should be looked upon as revenue expenditure. No fault can be found with the findings recorded by the tribunal.