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

This case does not seem to us to present any real difficulty. It arises out of a reference to the High Court of Patna of two questions both of which were answered by the High Court against. the assessee, the appellant in thisappellant is. a company manufacturing sugar. It had its factory originally at a place called Sitalpur. That place was found to be disadvantageous for the appellants business as sugar cane of good quality was not available in sufficient quantity in the neighbourhood and also as it suffered from ravages of flood. With a view to improve its business the appellant removed its factory from Sitalpur to another place called Garaul and in the process of dismantling the building and machinery, transportation from Sitalpur to Garaul and refitting the machinery at the latter place, it incurred a total expense of Rs. 3, 19, 766/- in the year of account. In the assessment of its income-tax. it claimed a deduction of these expenses as revenue expenses. That claim was rejected. The questions referred concern these expenses.

Court's reasoning:
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.