Judgment Case ID: 1606

Judgment:
ivil Appeal No. 350 of 1962. Appeal by special leave from the judgment and decree dated November 30	 1960	 of the Patna High Court in Miscellaneous Judicial Case No. 799 of 1958. G. section Pathak and G.G. Mathur	 for the appellant. N. D. Karkhanis and R. N. Sachthey	 for the respondent. 1963	 April 10. The Judgment of the Court ' was delivered by SARKAR J. 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 this Court. The appellant is. a company manufacturing sugar. It had its factory originally at a place called 19 Sitalpur. That place was found to be disadvantageous for the appellant 's 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. The first question was this: "Whether the expenditure of Rs. 3	 19	766/ incurred by the assessee m dismantling and shifting the factory from Sitalpur and erecting the factory and fitting the machinery at Garaul was expenditure of a capital nature and not revenue expenditure within the meaning of section 10 (2) (xv) of the Income tax Act ?" Considering the matter apart from the authorities	 it seems to us impossible that the expenditure could be revenue expenditure. It was clearly not incurred for the purpose of carrying on the concern but it was incurred in setting up the concern with a greater advantage for the trade than it had m its.previous set up. The expenditure was .not. recurred m caring any profit but only for putting its factory	 that is	 its capital	 in better shape so that it might produce larger profits	 when work.ed. It really .went towards effecting a permanent improvement in the profit making machinery	 that is	 in the capital assets. It was	 therefore	 a capital expenditure and not a revenue expenditure. 20 The case	 furthermore	 is completely governed by authorities. We think it comes clearly within the well known dictum of Viscount Cave in Atherton vs British Insulated and Helsby Cables Ltd (1). That "when an expenditure 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	 I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital". The test formulated by Viscount Cave has been accepted by this Court: see Assam Bengal Cement 6 '0. Ltd. vs The Commissioner of Income tax West Bengal (2). Here the expenditure produced an enduring advantage in the shape of transfer to a better factory site	 an advantage which enabled the trade to prosper and an advantage that could be expected to last for ever. It was an expense properly attributable to capital under Viscount Cave 'dictum. Mr. Pathak did not question the authority of the test laid down in Atherton 's case (1)	 but said that that test had no application in the present case as it would not apply unless by the expenditure a material asset or a covenant or right in the nature of capital was acquired. We find neither principle nor authority to support this contention. If an expenditure incurred	 say for acquiring an additional plant	 is capital expenditure	 an expenditure incurred in dismantling and refitting the existing plant at a better site would be equally capital expenditure. They would both be capital expenditure because both were incurred for increasing the capacity of the profit making machine to earn profits and neither was incurred for earning the profits themselves. In principle	 therefore	 there is no reason to make a distinction .as to the nature of the expense between an expenditure incurred for acquiring material capital (1) 192	 (2) 	 21 asset or a legal right in the nature of capital and an expenditure incurred for acquiring any other advantage of an enduring nature for the benefit of the trade. It is true that it has been said	 as Mr. Pathak pointed out	 that the advantage acquired by the expenditure must be analogous to an asset (see Halsbury 's Laws of England	 3rd ed. XX p. 162.) but that only means advantage of the nature of a capital asset	 that is to say	 "an advantage to the permanent and enduring benefit of the trade". see ibid p. 161. It is obviously not necessary for an advantage to be of such a nature that it must be the acquisition of a material asset or of a chose in action. As to the authorities	 they are all against the view for which Mr. Pathak contends. We propose to refer to two of them only. First	 there is the case of Granite Supply Association Ltd. vs Kitton (1). The assessee was a company whose business was to buy and sell granite. It found it necessary to shift to a larger yard and in doing so incurred expenses for removal of stones and cranes from the 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 MacLaren 's 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. The above case	 furthermore	 is indistinguishable from the case in hand. Mr. Pathak sought to (1) (1905) 5 T.C.160. 22 distinguish the present case from the Granite Supply Association Ltd. case (1)	 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 vs Doncaster Amalgamated Collieries Ltd.(2). 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 Company 's 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 Company 's 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 Cave 's phrase in Atherton vs British Insulated and Helsby Cables Ltd. 	 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 (1) (2) 	 23 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. The appellant 's 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/ ?" 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 section 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. 24 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. This appeal is dismissed with costs.

Summary:
The appellant	 a company manufacturing sugar	 shifted its factory from the old site to a new site and incurred a total expense of Rs. 3	19	766/ on the dismantling of buildings and machinery	 transporting machinery from the original site to the new site and refitting the same there. Held that the appellant was not entitled to a deduction of this expense for income tax purposes as an expense incurred for carrying on the concern or in earning profit	 it was an expense incurred m effecting a permanent improvement in the profit making machinery and was	 therefore	 an expenditure on capital account. The expense was on capital account also because it was made	 "not only once for all	 but with a view to bringing into existence an asset or an. advantage for the enduring benefit of a trade" within the dictum of Viscount Cave in Atherton vs British Insulated and Helsby Cables Ltd. In order that that dictum may apply it is not necessary that by the expenditure a material asset or a permanent right in the nature of capital should be acquired. There may be an expense incurred on capital account though nothing was thereby added to the capital value of an asset. Atherton vs British Insulated and Helsby Cables Ltd. 	 Assam Bengal Cement Go. Ltd. vs The Commissioner of Income tax	 West Bengal	 [1955] 1 S.C.R. 972	 Granite Supply Association Ltd. v Kitton	 and Bean vs Doncaster Amalgamated Collieries Ltd. 	 referred to. 18 An expense would not be on revenue account simply because it was incurred to turn a losing concern into a profitable one. Though the expense incurred by the appellant was of a capital nature	 it was not entitled to any depreciation on it under s.10 (2) (vi) of the Income tax Act because no tangible asset had been acquired by the expenditure which can be said to have depreciated. Neither was the appellant entitled to depreciation under part V of the Form of Return given in the Rules framed under the Act which dealt with a claim for depreciation and by column 3 required a statement to be made for "capital cxpenditure during the year for additions	 alternations	 improvements and extensions	 for to be so entitled to deductions under this part there has to be an improvement of the capital asset or increase in its value and there is no evidence of any such improvement or increase. Further, no claim for depreciation on improvement to capital asset had been made. 
392	The appellant sued the State of Orissa for a declaration that the Orissa Estates Abolition Act of 1951 was in its application to the Kanika Raj, of which he was the Raja and owner, invalid, unconstitutional and ultra vires the State Legislature and for an injunction restraining the State of Orissa from taking any action under the Act. It was contended, inter alia, that no notification under section 3(1) of the Act vesting the Kanika Raj in the State of Orissa could issue as the Raj was not an estate as defined by section 2 (g) of the Act. The contrary was asserted by the State of Orissa and its further contention was that the appellant was estopped by a compromise decree between his predecessors in title on the one band and the Secretary of State on the other from denying that the Raj was an estate as defined by the Act. Held, that the Kanika Raj was an estate as defined by the Orissa Estates Abolition Act of 1951 and the appellant was estopped from denying it by the compromise decree. That the real intention of the Act in defining 'estate ' as it has done in section 2(g) of the Act, was to include all lands, such as the appellant 's, which were as a matter of fact included ill the register prepared under the Bengal Land Registration Act Of 1876, and in construing the definition it is wholly unnecessary to consider whether such inclusion was valid or proper or in conformity with the meaning of an estate under that Act. That a judgment by consent is as effective in creating an estoppel between the parties as a judgment on contest and the test is whether the judgment in the previous case could have been passed without the determination of the question which is put in issue in the subsequent case where the plea of estoppel is raised. Held further, that there is no rule corresponding to Rule 4 of Order XIX of the Supreme Court Rules imposing a similar disability on the respondent, and even with regard to the appellant the court may in appropriate cases, give him leave to raise a ground not specified in the Statement of the Case filed by him. 
6169	In a public interest application filed under Article 32 of the Constitution for enforcement of fundamental rights under Articles 14 and 21 of the Constitution being denied to the hundreds of juvenile delinquents, all over the country, the Supreme Court had issued directions from time to time. Issuing further directions in the matter, this Court, HELD: For the present the Advisory Board in terms of the provision of the scheme for facilitating the monitoring of the implementation of the Act should be set up at the State level and steps at the District level may be deferred. [35E] Each of the States, including the State of Jammu & Kashmir to which the scheme would apply, by its consent, is directed to set up its Advisory Board in terms of the scheme. The total number of the Advisory Boards should not be below 15 and not above 20. The State Government should indicate as to who would be the Chairman and Secretary respectively of the Board. Such Committee should be set up within six weeks and report of compliance filed with the Registry of this Court within eight weeks. The first meeting of the Board should be within four weeks of its constitution and every such Board should send its first proceeding to the Registry, [35F, H, 36A B] 
3011	The appellants are dealers in Rab. The State Government under section 3D(1) of the U.P. Sales Tax Act, 1948, levied purchase tax in respect of their, dealings in Rab. Section 3D(1) of the Act, inter alia, provides that for each assessment year, there shall be levied and paid a tax on the turnover of first purchases made by a dealer or through a dealer in respect of such goods, at such rates not exceeding 2 paise per rupee in the case of foodgrains and 5 paise in respect of other goods and in the explanation it is provided that in the case of purchase made by a registered dealer through a licensed dealer	 'the registered dealer shall be the	 first purchaser and in every other case of fresh purchase	 the dealer through whom the first purchase is made shall be deemed to be the first purchaser. The appellants challenged the vires of section 3(d)(1) of the Act before the High Court but the High Court held against the appellants. In appeal this Court	 it was contended by the appellants that in empowering the Government to	 levy tax on goods other than foodgrains at a rate not exceeding 5 paise in a rupee	 the legislature had given an unduly wide power to the executive. Such a delegated power was	 therefore	 excessive and bad in law and secondly	 section 3D(1) infringed article 14 of the Constitution because it discriminated between registered dealers who purchased through licensed dealers and the registered dealers who purchased through other dealers. Dismissing the appeals	 HELD: (i) The power to fix the rate of tax is a legislative power	 but if the legislature lays down the legislative policy and provides the necessary guidelines that power can be delegated to the executive. 	 Though a tax is levied primarily for the purpose of gathering revenue	 in selecting the objects to be taxed and in determining the rate of tax	 various social and economic factors are to be considered and since the legislatures have very little time to go into details	 they have to delegate certain powers to the Executive. This Court has ruled that if a reasonable upper limit is prescribed	 the legislature can always delegate the power of fixing the rate of purchase 'tax or sales tax. [143 E] Devi Days Gopal Krishnan vs State of Punjab	 20 S.T.C. 430	 followed. In the present case	 taking into consideration the legislative practice in this country and the rate of tax levied or leviable under the various sales tax laws in force in this country	 it cannot be said that the power delegated to the. executive is excessive and in the absence of any material	 it cannot be said that the maximum rate fixed under section 3D(1) is unreasonably high. 144 E F] (ii) Section 3D is not violative of article 14 of the Constitution. In the present case	 there is nothing wrong for the legislature to make a classification between licensed dealers and dealers who are not licensed. A licensed dealer has to maintain true and correct accounts and other particulars of 142 purchasers whereas dealers who are not registered are not required to maintain any accounts. Hence	 if registered dealers are permitted to make purchases through dealers who are not licensed and those dealers are themselves not liable to be taxed	 then opportunity for evasion of tax becomes larger. Under the circumstances	 the classification is not unjustified. [145 G] State of Madras vs Gannon Dunkerlay & Co. (Madras) Ltd.	 ; and Devi Deo Gopal Krishna vs State of Punjab	 20 S.T.C. 430	 referred to.