Case: Commissioner Of Income-Tax,Bombay City-I, Bombay Vs. Associated Cement Companies Ltd., Bombay

of the Lahore High Court in Benarsidas Jagannath, In re ((1947) 15 ITR 185 (Lah) (FB) holding that expenditure may be treated as property 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 lumpsum payment is an annual business expense chargeable against revenue, the lumpsum payment should equally be regarded as a business expense, but if the lumpsum payment brings in a capital asset, then that puts the business on another footing altogether. 8. 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. 9. 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 record, 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. 10. 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. v. CIT ((1980) 124 ITR 1 (SC) : (1980) 4 SCC 25 : 1980 SCC (Tax) 335) that there may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, 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 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 assessees trading operations or enabling the management and conduct of the assessees 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 6(b) provided that 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 Rs. 2, 03, 255 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 appellants 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 filed of revenue and not capital. As 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, applying the principles laid down in Empire Jute Co. case ((1980) 124 ITR 1 (SC) : (1980) 4 SCC 25 : 1980 SCC (Tax) 335) the expenditure is clearly liable to be allowed as deductible from the profits under Section 10(2)(xv) of the Indian Income Tax Act. 11.

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

Explanation:
0[ds]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 record, 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 rejectedIn our view it is difficult to accept this submission either. As observed by the Supreme Court in the decision in Empire Jute Co. Ltd. v. CIT ((1980) 124 ITR 1 (SC) : (1980) 4 SCC 25 : 1980 SCC (Tax) 335) that there may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, 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 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 assessees trading operations or enabling the management and conduct of the assessees 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 6(b) provided that 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 Rs. 2, 03, 255 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 appellants 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 filed of revenue and not capital. As 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, applying the principles laid down in Empire Jute Co. case ((1980) 124 ITR 1 (SC) : (1980) 4 SCC 25 : 1980 SCC (Tax) 335) the expenditure is clearly liable to be allowed as deductible from the profits under Section 10(2)(xv) of the Indian Income Tax Act.