Case: M/S. Sitalpur Sugar Works Ltd Vs. Commissioner Of Income-Tax, Bihar And Orissa

old to the new yard and for re-erecting the cranes in the latter yard. It was held that the Company was not entitled to a deduction for these expenses. It was said that the expenses were of the same kind as those which might have been incurred in the buying of new cranes. Lord MacLaren said (p. 17IL "I think that the cost of transferring plant from one set of premises to another more commodious set of premises is not an expense incurred for the year in which the thing is done, but for the general interests of the business. It is said, no doubt, that this transference does not add to the capital value of the plant, but I think that is not the criterion." Lord MacLarens observation is completely against the view advocated by Mr. Pathak that to constitute an enduring benefit a material asset or a right must be created.6. The above case, furthermore, is indistinguishable from the case in hand. Mr. Pathak sought to distinguish the present case from the Granite Supply Association Ltd. case ((1905) 5 T.C. 168.), on the ground that there the business was not running at a loss in the old yard and the expenses were incurred only to enlarge the business and hence were on capital account. We find it difficult to. appreciate this distinction. Whether an expense is on capital account or not would not depend on whether it was incurred for earning larger profits than before nor would an expenditure be on revenue account because it was incurred for turning a losing concern into a profitable one.The other case to which we will refer is Bean v. Doncaster Amalgamated Collieries Ltd.((1946) 27 T.C. 296, ). The Colliery Company was required by a statute to incur expenses for remedial works necessary to obviate loss of efficiency in an existing drainage system due to subsidence caused by the Companys workings. The Drainage Board formed a general drainage improvement scheme and the Company paid a part of the expenses of the new drainage constructed under the scheme. As a result of the new drainage the Company was enabled to work its seams without incurring the liability under the statute as the new drainage system had been so constructed as to remain unaffected by the Companys workings. It was contended by the company that the payment for the new drainage was a revenue expenditure as it had not resulted in the acquisition of any-capital asset, but this contention was rejected and it was held that the expenditure was on capital account and no deduction for it was allowable. Viscount Simon said (p. 312), that the expenses had been incurred "to secure an enduring advantage within the proper application of Lord Caves phrase in Atherton v. British Insulated and Helsby Cables Ltd. (10 T.C. 155, at page 192)". He also quoted (p.312) with approval the observation of Uthwatt J. in the Court of Appeal that, "The result of the transaction clearly was that the value of the particular coal measures--a capital asset remaining unchanged in character--was increased both for use and exchange. There was, therefore, as the result of the transaction, brought into existence, not indeed an asset, but an advantage for the enduring benefit of the trade of the Company." Obviously, therefore, there can be an enduring advantage acquired without an addition to or increase in the value of any capital asset.It is no doubt true that the distinction between revenue expenditure and expenditure on capital is very fine and often it is difficult to decide under which class an expenditure properly falls. No such difficulty, however, arises in the present ease. We think, for the reasons earlier mentioned, that the present is a plain ease and we feel no doubt that the expenses for shifting and re-erection were incurred on capital account. The first question referred was clearly correctly answered by the High Court.7. The appellants ease is even weaker with regard to the other question which was this: "Whether the assessee was entitled to claim depreciation on the said expenditure of Rs. 3, 19, 766/-?"8. This question was raised presumably on the basis that if in respect of the first question it was held that the expenditure was on capital account, then depreciation should be payable on the amount of the expenditure in the same way as depreciation is allowed on capital. The claim for depreciation was made under s. 10 (2) (vi) of the Income- tax Act. But as the High Court rightly pointed out, no such depreciation could be claimed because no tangible asset had been acquired by the expenditure which could be said to have depreciated.9. Mr. Pathak, therefore, put the case of the appellant from a slightly different point of view. He referred us to Part V of the Form of Return given in the Rules framed under the Act. That Part deals with a claim for depreciation. Column 3 of this Part requires a statement to be made for "Capital expenditure during the year for additions, alternations, improvements and extensions". Mr. Pathak contended that this Part showed that depreciation is allowable on capital expenditure for improvements, and that in view of our answer to question No. 1. the appellant would be entitled to depreciation on the expense as capital expenses incurred for improvement. This is an obviously fallacious argument. In order to be entitled to deduction on account of depreciation under this Part of the Form, there has to be an improvement of the capital asset, an increase in its value. All that we have here is an expense incurred for acquiring an advantage for the trade. That may or may not be an improvement in the capital assets. The appellant cannot claim depreciation on the amount spent for acquiring an advantage. Whether it could claim depreciation on improvements effected to capital assets is not a question referred to the Court. The second question, therefore, was also correctly answered in the negative by the High Court.

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

Explanation:
0[ds]We think, for the reasons earlier mentioned, that the present is a plain ease and we feel no doubt that the expenses for shifting and re-erection were incurred on capital account. The first question referred was clearly correctly answered by the Highappellants ease is even weaker with regard to the other question which was this: "Whether the assessee was entitled to claim depreciation on the said expenditure of Rs. 3, 19,question was raised presumably on the basis that if in respect of the first question it was held that the expenditure was on capital account, then depreciation should be payable on the amount of the expenditure in the same way as depreciation is allowed on capital. The claim for depreciation was made under s. 10 (2) (vi) of the Income- tax Act. But as the High Court rightly pointed out, no such depreciation could be claimed because no tangible asset had been acquired by the expenditure which could be said to have depreciated.Pathak, therefore, put the case of the appellant from a slightly different point of view. He referred us to Part V of the Form of Return given in the Rules framed under the Act. That Part deals with a claim for depreciation. Column 3 of this Part requires a statement to be made for "Capital expenditure during the year for additions, alternations, improvements and extensions". Mr. Pathak contended that this Part showed that depreciation is allowable on capital expenditure for improvements, and that in view of our answer to question No. 1. the appellant would be entitled to depreciation on the expense as capital expenses incurred for improvement. This is an obviously fallacious argument. In order to be entitled to deduction on account of depreciation under this Part of the Form, there has to be an improvement of the capital asset, an increase in its value. All that we have here is an expense incurred for acquiring an advantage for the trade. That may or may not be an improvement in the capital assets. The appellant cannot claim depreciation on the amount spent for acquiring an advantage. Whether it could claim depreciation on improvements effected to capital assets is not a question referred to the Court. The second question, therefore, was also correctly answered in the negative by the High Court.