Case: Travancore Cochin Chemicals Limited Vs. Commissioner Of Income-Tax, Kerala

The assessment year in question is 1964-65, 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 other public undertakings approached the Government of Kerala for laying a new road from Kalamasseri to Udyogamandal ; this area where the assessees factory is situate was not at the material time 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. 1, 04, 550 and the assessees share came to Rs. 26, 100. The assessee-company sought to deduct this amount from its total income claiming this as revenue expenditure for the year in question. The Income-tax Officer disallowed the claim holding that the assessees contribution was capital expenditure. The Appellate Assistant Commissioner took the same view. The Appellate Tribunal, mainly relying on the decision of the Calcutta High Court in Commissioner of Income-tax v. Hindusthan Motors Ltd. [1968] 68 ITR 301 (Cal)  , 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 256(1) ofthe Income-tax Act, 1961 " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was legally justified in allowing the expenditure of Rs. 26, 100 being the respondents contribution to Government for constructing a road as a permissible deduction under section 37(1) ofthe Income-tax Act, 1961 ? "The High Court held that the assessee in this case obtained an advantage of an enduring nature by the construction of the road and, therefore, the amount contributed was capital expenditure. The High Court accordingly answered the question in the negative and against the assessee. In this appeal, brought on a certificate under section 261 ofthe Income-tax Act, 1961, the assessee challenges the correctness of the answer given by the High Court to the question

Reasoning: In the case before us, the High Court applied Viscount Caves test and found that the expenditure made by the assessee brought into existence an advantage for the enduring benefit of the assessees trade and accordingly held that this was capital expenditureEach 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 secured for it an enduring benefit, or was it necessary for running its business ? On the facts of the case the position seems to us 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 Commissioner of Income-tax v. Hindusthan Motors Ltd. [1968] 68 ITR 301 (Cal)  , 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 assessees businessUnder the provisions of the U. P. 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 madeApart from the fact that in this case the expenditure incurred 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 assessees business. Lakshmiji Sugar Mills case [1971] 82 ITR 376 (SC) is quite different on facts from the one before us and must be confined 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.