Commissioner Of Income Tax, Kota v. M/S Manglam Cement Ltd., Aditya Nagar, Morak , Kota

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 138 / 2014 COMMISSIONER OF INCOME TAX, Kota ----Appellant Versus M/S MANGLAM CEMENT LTD., ADITYA NAGAR, MORAK , KOTA ----Respondent _____________________________________________________ For Appellant(s) : Ms. Parinitoo Jain with Mr. Shiva Goyal For Respondent(s) : Mr. Sanjay Jhanwar _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERIHON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 19/09/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby Tribunal has allowedthe appeal of the assessee modifying the order of CIT(A) which ispartly allowed of appeal of the assessee. 2.The facts of the case are that the assessee filedoriginal return declaring Income of Rs.1019369668/- on29.9.2009 for assessement year 2009-10, further assesseerevised return of income on 11.02.2011 declaring total income atRs.1016766056/-. Further case was selected for scrutiny Noticeunder Section 143 (2) was issued on 29.9.2009 which was dulyserved. Detailed query letter along with notice under Section 142(1) was issued on 18.1.2011. Sh. Anil Mandot, Sr. Vice President(Accounts and Taxation) alongwith Sh. Manish Agarwal, Dy. G.M.and Sh. Suresh Chand Gupta, Asst. Manager attended on various dates and filed replies. Books of account and other documentswere produced which were examined on test check basis and thecase was discussed with them. The assessee is engaged inbusiness of manufacturing of Cement and generation of power. 3.The AO has added income which was further modifiedby the Tribunal. 4.This Court while admitting the appeal on 30.7.2015, framed following substantial questions of law:- “1. Whether the Tribunal was legally justified in reversingthe order of the CIT(A) and deleting the addition ofRs.13,30,82,204/- by holding that the gain on dischargeof deferred sales tax loan was capital receipt and notchargeable to tax in accordance with Section 41(1) beingcessation of liability? 2. Whether the Tribunal was legally justified in reversingthe order of the CIT(A) and holding that expenses ofRs.5,02,61,166/- towards installation of Fly Ash HandlingSystem (SILCO) at Kota Super Thermal Power Station(KSTPS) and expenses of Rs.22,80,660/- for commonproperty work at KSTPS were revenue in nature,specially when the property could not be transferredbefore five years as per the lease agreement and theassessee earned long term benefit from it?” 5.Counsel for the appellant contended that the issuesare decided contrary to the evidence on record and the deletionof Rs.13,30,82,204/- which was shown as capital receipt of salestax ought to have been charged under Section 41(1) of theIncome Tax Act. 6.On second issue, learned counsel for the appellantcontended that the expenses which are ought to have beenconsidered as capital expenses and not as revenue expenses andthe view taken by the Tribunal is required to be reversed. 7.Counsel for respondent contended that in D.B. ITANo.65/2012 decided on 15.5.2017 wherein this Court relying onBombay High Court reported in [2010] 326 ITR 117 (Bombay),SI Group India Ltd. vs. Assistant Commissioner of Income Tax,Range 3(3), wherein it has been observed as under :- “7. Section 41(1)(a) of the Act provides as follows: 41. (1) Where an allowance or deduction hasbeen made in the assessment for any year in respectof loss, expenditure or trading liability incurred bythe assessee (hereinafter referred to as the firstmentioned person) and subsequently during anyprevious year: 7.Counsel for respondent contended that in D.B. ITANo.65/2012 decided on 15.5.2017 wherein this Court relying onBombay High Court reported in [2010] 326 ITR 117 (Bombay),SI Group India Ltd. vs. Assistant Commissioner of Income Tax,Range 3(3), wherein it has been observed as under :- “7. Section 41(1)(a) of the Act provides as follows: 41. (1) Where an allowance or deduction hasbeen made in the assessment for any year in respectof loss, expenditure or trading liability incurred bythe assessee (hereinafter referred to as the firstmentioned person) and subsequently during anyprevious year: (a) the first mentioned person has obtained,whether in cash or in any other manner whatsoever,any amount in respect of such loss or expenditure orsome benefit in respect of such trading liability byway of remission or cessation thereof, the amountobtained by such person or the value of benefitaccruing to him shall be deemed to be profits andgains of business or profession and accordinglychargeable to income tax as the income of thatprevious year, whether the business or profession inrespect of which the allowance or deduction hasbeen made is in existence in that year or not; 8. In order that the provisions of Sub-section (1)should be attracted the first requirement is that anallowance or deduction must have been made in theassessment for any year in respect of a loss,expenditure or trading liability incurred by theassessee. The liability of the assessee to pay salestax is undisputedly a trading liability in respect ofwhich an allowance or deduction had been madeunder Section 43B. However, under Clause (a) ofSub-section (1) it is inter alia required that theassessee ought to have obtained "some benefit inrespect of such trading liability by way of remissionor cessation thereof". This postulates that theremust be a remission or cessation of the tradingliability and that consequently a benefit must enureto the assessee. In the present case, the disputebetween the assessee and the Revenue is as to whether there was a remission or cessation of theliability on account of sales tax. whether there was a remission or cessation of theliability on account of sales tax. 9. The assessee had collected an amount of Rs. 1.79Crores towards sales tax dues during the period 1May 1999 and 31 March 2000. Under the packagescheme of incentives announced by the Governmentof Maharashtra in 1993 the sales tax dues had to bepaid in five installments commencing from April2010. SICOM as the implementing agencyquantified, according to the assessee, the netpresent value of the deferred liability of the assesseeat Rs. 50.44 lacs which was paid by the assessee toSICOM. However, the sales tax officer while passingthe assessment order on 18 March 2004 did notconsider the amount paid to SICOM as repayment ofthe deferred liability of the assessee to the extent ofRs. 1.79 Crores under the Bombay Sales Tax Act,1959 and Central Sales Tax Act, 1956. The appealsfiled by the assessee before the DeputyCommissioner of Sales Tax were dismissed uponwhich the assessee filed a second appeal before theMaharashtra Sales Tax Tribunal. The Tribunal, by itsjudgment dated 8 February 2008 upheld the order ofthe lower authorities of not giving credit of thepayment made by the assessee to SICOM. In theseproceedings, neither the validity of the order passedby the Sales Tax Tribunal nor for that matter thecorrectness of the reasons that weighed with theTribunal can be called into question. The Tribunalobserved that though the assessee had made apremature payment of the deferred tax inaccordance with the scheme issued by theDepartment of Industries of the State Governmentunder the package scheme of incentives of 1993, thepayment of the net present value was to be made inthe challan prescribed under the Sales Tax Act whichconstituted the lawful mode of making payment andthe payment which was made to SICOM wouldnonetheless have to follow the procedure prescribedunder the Act. The Tribunal was of the view that thedecision of the assessing authority and of the DeputyCommissioner of Sales Tax not to give credit to thepayment made to SICOM would have to be upheld,but left it open to the assessee to procure a validdocument under the scheme which would be "considered for relevant period for relevant deferredamount". 11. In the view that we have taken it is notnecessary for the Court to address itself to the widerissue as to whether the assessee, in paying the netpresent value of the deferred sales tax liabilityshould be regarded as having obtained any benefitwithin the meaning of Clause (a) of Sub-section (1)of Section 41. The aforesaid issue is kept open to beadjudicated upon at the appropriate stage inappropriate proceedings. 12. The Tribunal, in our view, was in error inproceeding on the basis that there was a remissionor cessation of liability. The attention of the Tribunalwas drawn to the order passed by the Sales TaxTribunal. The fact that the order of the Sales TaxTribunal was placed for consideration before theIncome Tax Appellate Tribunal emerges from theorder of the Tribunal itself. Consistent with the orderpassed by the Sales Tax Tribunal which continues tohold the field, the ITAT could not have come to theconclusion that there had occurred a remission orcessation of liability during the assessment years inquestion.” 8.Learned counsel for appellant has also relied upon incase of Commissioner of Income-tax vs. Bharat Aluminium Co.Ltd. - [2010] 187 Taxman 111 (Delhi), observed as under :- “11. The expenditure incurred by the assessee inmaking payments to Municipality to lay new cables,which were to belong to Municipality, was treated asbusiness expenditure and not capital expenditure bythis Court in Hindustan Times Ltd. (supra). Thisjudgment has been followed in Saw Pipes Ltd.(supra). 8.Learned counsel for appellant has also relied upon incase of Commissioner of Income-tax vs. Bharat Aluminium Co.Ltd. - [2010] 187 Taxman 111 (Delhi), observed as under :- “11. The expenditure incurred by the assessee inmaking payments to Municipality to lay new cables,which were to belong to Municipality, was treated asbusiness expenditure and not capital expenditure bythis Court in Hindustan Times Ltd. (supra). Thisjudgment has been followed in Saw Pipes Ltd.(supra). 12. Case of Travancore Cochin Chemicals Ltd.(supra) relied upon by the learned Counsel for theRevenue would have no application in the instantcase. In that case itself, the Supreme Court clearlyopined that each case depends upon its own facts.This judgment has been explained by the SupremeCourt itself in its later judgment reported as L.H.Sugar Factory and Oil Mills (P) Ltd., Pilibhit v. CIT, U.P.LucknowMANU/SC/0281/1980MANU/SC/0281/1980 : 125 ITR 293 observing that the aforesaidjudgment is to be confined to its own fact as is clearfrom the following passage: We would make the same observation in regardto the decision in Travancore-Cochin Chemicals case(supra) and say that decision must be confined tothe peculiar facts of that case, because LakshmijiSugar Mills' case (supra) admittedly bears a closeranalogy to the present case than the Travancore-Cochin Chemicals' case and if at all we apply themethod of arguing by analogy, the decision inLakshmiji Sugar Mills case (supra) must beregarded as affording us greater guidance in thedecision in the present case then the decision inTravancore-Cochin Chemicals' case (supra).Moreover, we find that the parenthetical Clause inthe test formulated by Lord Cave L.C. in Antherton'scase (supra) was not brought to the attention ofthis Court in Travancore-Cochin Chemicals' casewith the result that this Court was persuaded toapply that test as if it were an absolute anduniversal test regardless of the question applicablein all cases irrespective whether the advantagesecured for the business was in the capital field ornot. We would therefore prefer to follow thedecision in Lakshmiji Sugar Mills' case (Supra) andhold on the analogy of that decision that theamount of Rs. 50,000 contributed by the assesseerepresented expenditure on the revenue account. 19. It is not correct to say that the Tribunal has notgiven reasons. An pointed out above, the Tribunalhas not only referred to the judgments of theSupreme Court and Bombay High Court interpretingthe powers of the Tribunal under Section 254 of theAct, it also specifically stated that the issues, whichwere sought to be raised in the additional groundsarise out of tax proceedings of the assessee for theAssessment Year under consideration and also thefacts that were necessary for adjudication on theseadditional grounds were available on record. In fact,as we notice hereinafter, when the Tribunal dealtwith those additional grounds, it took intoconsideration the facts which were already onrecord and the issues also related to theAssessment Year under consideration. To demonstrate this, it is not necessary to take up fordiscussion all the additional grounds. Followingexamples would suffice, as the position in respect ofother additional grounds remain the same. One additional ground was in the following terms: That the prior period expenses claimed by theassessee in subsequent year but disallowed by theAssessing Officer on the ground that the expensesdid not pertain to that year ought to have beenallowed by the Assessing Officer during the yearunder appeal. demonstrate this, it is not necessary to take up fordiscussion all the additional grounds. Followingexamples would suffice, as the position in respect ofother additional grounds remain the same. One additional ground was in the following terms: That the prior period expenses claimed by theassessee in subsequent year but disallowed by theAssessing Officer on the ground that the expensesdid not pertain to that year ought to have beenallowed by the Assessing Officer during the yearunder appeal. It is clear from the above that the assessee hadclaimed prior period expenses in subsequent year,but in that subsequent year, the Assessing Officerhad disallowed it did not pertain in that year. Inthese circumstances, the plea of the assessee wasthat since these expenses pertain to the year underquestion, they should be allowed at least in thisyear. It was also pointed out that the mistakecommitted by the assessee was that these expensesof prior period were added back by the assessee inits return of income on the misconceived notion onthe part of the Counsel when the return of theincome was filed. It was also explained that theassessee follows mercantile system of accountingand as per this system, these expenses did accrueas a liability to the assessee during the previousyear and thus allowable as deduction as per law. Itis clear from the aforesaid that facts were availableon record and the additional ground arose out of taxproceedings for the Assessment Year underconsideration. The Tribunal was of the opinion thatfor proper adjudication of the tax liability of theassessee in accordance with law, the issue neededremand back to the Assessing Officer for freshconsideration. Naturally, this additional ground wasallowed after satisfying that it fulfilled the legalrequirements for admission ability of such a groundin view of principle laid down in the case of NTPC(supra). 31. After going through these decisions of thevarious Benches of the Tribunal and the schematicintention behind the provisions relating todepreciation contained in the aforesaid provisions,we are inclined to affirm the view taken by the Tribunal in the instant case. While doing so, wehave in mind the rationale and purpose for whichthe concept of block asset was introduced by theamendment in the provisions of the Act, as reflectedin the Circular dated 23.09.1988 of the CBDT.Intention behind these provisions is apparent. Oncethe various assets are clubbed together and becomeblock asset within the meaning of Section 2(11) ofthe Act, for the purpose of deprecation it is oneasset. Every time, a new asset is acquired, it is tobe thrown into the common hotchpotch, i.e., blockasset on meeting the requirement of depreciationallowable at the same rate. The value of the blockasset increases and the depreciation is to be givenon the aforesaid value, which is to be treated aswritten down value. Individual assets lose theiridentity from that very moment it becomesinseparable part of block asset insofar as calculationof depreciation is concerned. Fusion of variousassets into the block asset gets disturbed only wheneventuality contained in Clause (iii) of Section 32takes place, viz., when a particular asset is sold,discarded or destroyed in the previous year (otherthan the previous year in which first brought inuse). Even in that event, the amount by which themoneys payable in respect of that particularbuilding, machinery, etc. together with the amountof scrap value is to be deducted from total writtendown value of the 'block asset'. 9.Learned counsel for appellant further relied upon incase of Commissioner of Income-tax, Delhi vs. SI Group IndiaLtd. - [2015] 379 ITR 326, observed as under :- 9.Learned counsel for appellant further relied upon incase of Commissioner of Income-tax, Delhi vs. SI Group IndiaLtd. - [2015] 379 ITR 326, observed as under :- “3. We may note that the main contention of therespondent-Assessee herein before the High Courtwas that the principal requirement for theapplicability of Section 41 of the Act is that theAssessee must obtain a benefit in respect of atrading liability by way of a remission or cessationthereof. He argued that in the present case, therewas no cessation of the liability of the Assessee inrespect of the payment of the sales tax dues andeven if there was such a cessation, no benefit wasobtained by the Assessee. This contention wassupported by the fact that the issue pertaining to the sales tax liability was decided by the Sales TaxTribunal by its judgment dated February 8, 2008,and the Tribunal has specifically upheld the decisionof the assessing authorities declining to grant creditto the Assessee of payment which was made toState Industrial and Investment Corporation ofMaharashtra Limited (SICOM) of Maharashtra. Thiscontention is accepted by the High Court in thefollowing manner :- 10. The net result of the order of the Sales TaxTribunal dated February 8, 2008, is to uphold thedecision of the assessing authority declining to grantcredit of the payment made by the Assessee to SICOMtowards discharge of the deferred sales tax liability. Asa matter of fact, on July 22, 2008, a notice of demandwas issued Under Section 38 of the Bombay Sales TaxAct of 1959 to the Assessee by the DeputyCommissioner of Sales Tax, Navi Mumbai in the totalamount of Rs. 1,33,13,555. Having regard both to theorder passed by the Sales Tax Tribunal on February 8,2008, and the notice of demand issued on July 22,2008, it is not possible for the court to accept thecontention that there was a remission or cessation ofliability. Since the record before the court does notdisclose that there was a remission or cessation ofliability, one of the requirements spelt out for theapplicability of Section 41(1)(a) has not been fulfilled inthe facts of the present case. 4. In view of the aforesaid facts, which clearlydemonstrate that the Assessee had not been grantedthe benefit of the said cessation for the assessmentyears in question, the High Court has rightly heldthat one of the requirements for the applicability ofSection 41(1)(a) of the Act had not been fulfilled inthe present case. We thus, do not find any error inthe order of the High Court. The appeals lack anymerit and are, accordingly, dismissed.” 10.Learned counsel for appellant further relied upon incase of Commissioner of Income-tax vs. Associated CementCompanies Ltd. - [1988] 38 Taxman 110A (SC), observed as under :- 5. According to the assessee, a sum of Rs. 2,09,459was spent during the year of account under thisagreement and this amount pertained to the laying of pipelines, installations and accessories of whichthe Shahabad Municipality became the owner underthe agreement and this amount was claimed as adeduction. The Income-tax officer disallowed thisamount, holding that it was a capital expenditure onthe basis that as a result of this expenditure thecompany derived an advantage of an enduringnature, namely that it would not have to paymunicipal taxes for a period of fifteen years. On anappeal by the Company, the Appellate Asstt.Commissioner allowed the deduction holding thatthe amount was the payment of a composite sum ofthe revenue outgoings for the following 15 years.The Revenue preferred an appeal to the Income-taxAppellate Tribunal. The Income-tax AppellateTribunal passed an order directing the Income-taxofficer to scrutinize the expenditure and allowed thededuction of the expenditure to the extent that itdid not result in the company becoming the ownerof any asset. 6. Before the High Court it was contended on behalfof the company that the entire amount of Rs.2,09,459 pertained to expenditure on pipelinesinstallations and other accessories which under theagreement came to ownership of the ShahabadTown Municipality and did not pertain to anyincrease of the assets of the company. The DivisionBench which decided the reference has pointed outthat it had not been disputed by the Revenue beforethe Tribunal that the entire expenditure concernedwas laid out for the purpose of business and theonly question was whether it was capitalexpenditure or revenue expenditure. The onlyground on which the claim of the assessee fordeduction of the said expenditure under Section10(2)(xv) of the Indian Income-tax Act was resistedthat it was capital expenditure. After exhaustivelyconsidering several decisions of the Supreme Courtand several English decisions, the Division Bench ofthe Bombay High Court came to the conclusion thatthe expenditure in question was revenueexpenditure and was liable to be allowed asdeduction. On the basis of these conclusions theBombay High Court decided the question referred intheir affirmative and in favour of the assessee. 11. The next submission made by Mr. Manchandawas that the advantage of not being liable to paymunicipal rates, taxes, etc. which the assesseecompany secured by reason of making theexpenditure in question was for a period of fifteenyears and hence it could be said to be an advantageof an enduring nature, so that the expenditureincurred in acquiring the same would be regardedas capital expenditure. In our view it is difficult toaccept this submission either. As observed by theSupreme Court in the decision in Empire Jute Co.Ltd. v. Commissioner of Income-tax [1980]124 ITR1(SC) that there may be cases where expenditure,even if incurred for obtaining an advantage ofenduring benefit, may, none the less, be on revenueaccount and the test of enduring benefit may breakdown. It is not every advantage of enduring natureacquired by an assessee that brings the case withinthe principles laid down in this test. What ismaterial to consider is the nature of the advantagein a commercial sense and it is only where theadvantage is in the capital field that the expenditurewould be disallowable on an application of this test.If the advantage consists merely in facilitating theassessee's trading operations or enabling themanagement and conduct of the assessee'sbusiness to be carried on more effectively or moreprofitably while leaving the fixed capital untouched,the expenditure would be on revenue account, eventhough the advantage may endure for an indefinitefuture. In that case the appellant, a companycarrying on the business of manufacture of jute,was a member of the Indian Jute Mills Association,which was formed with the objects, inter alia, ofprotecting the trade of its members, includingimposing restrictive conditions on the conduct of thetrade and adjusting the production of the mills of itsmembers. A working time agreement was enteredinto between the members restricting the number ofworking hours per week for which the mills wereentitled to work their looms. Clause 4 of theworking time agreement provided that no signatoryshall work for more than 45 hours per week. Clause6(b) provided that the signatories shall be entitledto transfer, in part or wholly, their allotment ofhours of work per week to any one or more of theother signatories. Under this clause the appellant purchased "looms hours" from four other mills forthe aggregate sum of Rs. 2,03,255 during theprevious year relevant to the assessment year1960-61 and claimed to deduct that amount asrevenue expenditure. The Tribunal held that theexpenditure incurred by the appellant was revenuein nature and hence deductible in computing theappellant's profits. The High Court reversed thisdecision, but on appeal, the Supreme Court allowedexpenditure as deductible expenditure on the basisof the principle set out earlier. If this principle isapplied to the facts of the case before us, what wefind is that the advantage which was secured by theassessee by making the expenditure in questionwas the securing of absolution or immunity fromliability to pay municipal rates and taxes undernormal conditions for a period of fifteen years. Ifthese liabilities had to be paid, the payments wouldhave been on revenue account and hence theadvantage secured was in the field of revenue andnot capital. As a result of the expenditure incurred,there was no addition to the capital assets of theassessee company and no change in its capitalstructure. The pipelines, etc. which might have beenregarded as capital assets and which came intoexistence as a result of the expenditure incurred didnot belong to the assessee company but to themunicipality. In these circumstances, applying theprinciples laid down in Empire Jute Co. 's case theexpenditure is clearly liable to be allowed asdeductible from the profits under Section 10(2)(xv)of the Indian Income-tax Act. In the result, theappeal fails and is dismissed with costs. 11.Learned counsel for appellant further relied upon incase of Commissioner of Income-tax vs. Associated CementCompanies Ltd. - [1988] 38 Taxman 110A (SC), observed asunder :- “3. The facts in Saw Pipes Ltd's case (supra) werethat the assessee was engaged in the business ofmanufacturing pipes. The assessee, for the purposesof its fourth unit, requested the Maharashtra StateElectricity Board to set up a service line for supply ofelectricity. The said State Electricity Board supplied these electricity lines, however, retaining theownership of the cables. The assessee spent anamount of Rs 52 lakhs towards service charges paidto the said State Electricity Board. Since theassessee had not commenced production, being anew unit, it claimed the amount as a revenueexpenditure. In that case, the contention raised bythe revenue was that the laying of the service linewas a benefit of an enduring nature to the assesseeand, therefore, it was in the nature of a capitalexpenditure. This court relied upon an earlierdecision in the case of Hindustan Times Ltd. v. CIT[1980] 122 ITR 977(Delhi) , wherein it was observedthat:- ...If the advantage consists merely in facilitatingthe assessee's trading operations or enabling themanagement and conduct of the assessee's businessto be carried on more efficiently and profitably,leaving the fixed capital untouched, the expenditurewould be on revenue account even though theadvantage may endure for an indefinite future.... 4. In Saw Pipes Ltd.'s case (supra), this courtobserved that though the assessee had spent anamount of Rs. 52 lakhs towards laying of servicelines, the cables did not belong to the assessee, butbelonged to the Maharashtra State Electricity Boardand, therefore, the benefit that the assessee got wasof a commercial nature and was in the nature of abusiness advantage. Consequently, this court heldthat the expenditure incurred by the assessee oughtto be treated as revenue expenditure. 4. In Saw Pipes Ltd.'s case (supra), this courtobserved that though the assessee had spent anamount of Rs. 52 lakhs towards laying of servicelines, the cables did not belong to the assessee, butbelonged to the Maharashtra State Electricity Boardand, therefore, the benefit that the assessee got wasof a commercial nature and was in the nature of abusiness advantage. Consequently, this court heldthat the expenditure incurred by the assessee oughtto be treated as revenue expenditure. 5. The facts of the present case are no different. Theassessee paid the said sum of Rs. 10,64,930 to theState Electricity Board for installing the transformerand LT Lines for supply of electricity to its factory.The ownership of the transformer and the LT Linesremained with the State Electricity Board and thefixed capital structure of the assessee remaineduntouched. The ratio in the decision of this court inSaw Pipes Ltd.'s case (supra) would be fullyapplicable. The Tribunal has done exactly this. Wefind no error in the decision of the Tribunal.” 12.Learned counsel for appellant has also relied upon incase of Commissioner of Income-tax vs. Madras Auto Service (P)Ltd. - [1998] 99 Taxman 575 (SC), observed as under :- “7. The test for distinguishing between capitalexpenditure and revenue expenditure in our countrywas laid down by this Court in Assam Bengal CementCo. Ltd. v. Commissioner of Income-tax, WestBengal [1955]27ITR34(SC) . In that case, theappellant-company had acquired from theGovernment of Assam lease of certain lime-stonequarries for a period of 20 years for the purpose ofmanufacture of cement. The lessee had, inter alia,agreed to pay an annual sum during the wholeperiod of the lease as a protection fee and inconsideration of that payment, the lessor undertooknot to grant to any person any lease, permit orprospecting licence for lime-stone. This Courtexamined tests laid down in various cases fordistinguishing between capital expenditure andrevenue expenditure. One of the standard tests nowin use was laid down in the case of Atherton v.British Insulated and Helsby Cables Ltd., (1925) 10Tax. Cas 155. It said : "When an expenditure ismade, not only once and for all but with a view tobringing into existence an asset or an advantage forthe enduring benefit of a trade, I think that mere isvery good reason (in the absence of specialcircumstances leading to an opposite conclusion) fortreating such an expenditure as properly attributablenot to revenue but to capita." Whether by spendingthe money any advantage of an enduring nature hasbeen obtained or not will depend upon the facts ofeach case. Moreover, as the above passage itselfprovides, this test would not apply if there arespecial circumstances pointing to the contrary. ThisCourt in the above case summarised the tests asfollows :(p. 44) : 1. Outlay is deemed to be capital when it ismade for the initiation of a business, forextension of a business, or for a substantialreplacement of equipment, 2. Expenditure may be treated as properlyattributable to capital when it is made not onlyonce and for all, but with a view to bringing into existence an asset or an advantage for theenduring benefit of a trade....If what is got ridof by a lump sum payment is an annualbusiness expense chargeable against revenue,the lump sum payment should equally beregarded as a business expense, but if the lumpsum payment brings in a capital asset, then thatputs the business on another footing altogether. 3. Whether for the purpose of the expenditure,any capital was withdrawn, or, in other words,whether the object of incurring the expenditurewas to employ what was taken in as capital ofthe business. Again, it is to be seen whether theexpenditure incurred was part of the fixedcapital of the business or part of its circulatingcapital. existence an asset or an advantage for theenduring benefit of a trade....If what is got ridof by a lump sum payment is an annualbusiness expense chargeable against revenue,the lump sum payment should equally beregarded as a business expense, but if the lumpsum payment brings in a capital asset, then thatputs the business on another footing altogether. 3. Whether for the purpose of the expenditure,any capital was withdrawn, or, in other words,whether the object of incurring the expenditurewas to employ what was taken in as capital ofthe business. Again, it is to be seen whether theexpenditure incurred was part of the fixedcapital of the business or part of its circulatingcapital. 8. Relying upon the second test enumerated above,learned counsel for the appellant has submitted thatthe assessee got enduring benefit of a capital natureby spending the amount because the assesseeobtained a new building for a period of 39 years. Thedifficulty, however, in the present case, arises fromthe fact that this building was never to belong to theassessee. Right from inception, the building was ofthe ownership of the lessor. therefore, by spendingthis money, the assessee did not acquire any capitalasset. The only advantage which the assesseederived by spending the money was that it got thelease of a new building at a low rent. From thebusiness point of view, therefore, the assessee gotthe benefit of reduced rent. The High Court has,therefore, rightly considered this as obtaining abusiness advantage. The expenditure is, therefore,to be treated as revenue expenditure. 9. Although there are a number of cases dealing withthis question, we will limit ourselves to examining afew cases where the assessee, by expending money,created an asset of an enduring nature. However,the asset so created did not belong to the assessee.In such a situation the courts have held that theexpenditure was for better carrying on of thebusiness of the assessee and could be allowed asrevenue expenditure, looking to the circumstances ofeach of those cases. Thus in Lakshmiji Sugar Mills Co. P. Ltd. v. Commissioner of Income-tax, New Delhi [1971]82ITR376(SC) the assessee companywas carrying on the business of manufacture andsale of sugar. It paid to the Cane DevelopmentCouncil certain amounts by way of contribution forthe construction and development of roads betweenvarious sugarcane-producing centers and the sugarfactories of the assessee. The roads remained theproperty of the Government. This Court held that theexpenditure was not of a capital nature and had tobe allowed as an admissible deduction in computingthe profits of the assessee's business. Theexpenditure was incurred for the purpose offacilitating the running of the assessee's motorvehicles and other means employed fortransportation of sugarcane to its factories. 10. In the case of L.H. Sugar Factory and Oils Mills(P) Ltd. v. Commissioner of Income-tax, U.P.[1980]125ITR293(SC) , the assessee was carryingon the business of manufacture and sale of sugar. Ithas its factory in U.P. The assessee paid acontribution towards meeting the cost ofconstruction of roads in the area around its factoryunder a sugarcane development scheme. Thequestion was whether this amount was deductible incomputing the assessee's profits. The Court heldthat it was. Because although the advantage securedwas of long duration, it was not an advantage in thecapital field because no tangible or intangible assetwas acquired by the assessee; nor was there anyaddition to or expansion of the profit makingapparatus of the assessee. The amount wascontributed for the purpose of facilitating thebusiness of the assessee and making it moreefficient and profitable. It was, therefore, revenueexpenditure. 11. In the case of Commissioner of Income-tea,Bombay City-I v. Associated Cement Companies Ltd.[1988]172ITR257(SC) the respondent-companyentered into an agreement to supply water to themunicipality and provide water pipelines as also tosupply electricity for street lighting and put up atransmission line for that purpose. The assessee alsoagreed to concrete the main road from the factory to the railway station. The amounts expended forthese, purposes were held to be revenueexpenditure since the installations and accessorieswere the assets of the municipality and not of theassessee. The expenditure, therefore, did not resultin creating any capital asset for the company. Theadvantage secured by the respondent was immunityfrom liability to pay municipal rates and taxes for aperiod of 15 years. This Court said that had theseliabilities been paid, the payments would have beenon revenue account. Therefore, the advantagesecured was in the field of revenue and not capital. 12. In the case of CIT v. Bombay dyeing & Mfg. Co.Ltd. [1996] 219 ITR 521/85 Taxman 396 (sc), thecompany contributed to the state Housing Boardcertain amounts for construction of tenements for itsworkers. The tenements for its workers. Thetenements remained the property of the HousingBoard. It was held that the expenditure wasincurred wholly and exclusively on the welfare of theemployees and, therefore, constituted legitimatebusiness expenditure. As the assessee-companyacquired no ownership acquired no ownership rightsin the tenements, this court said that theexpenditure was incurred merely with a view tocarry on the business of the company moreefficiently by having a contended labour force. 13. All these cases have looked upon expenditurewhich did bring about some kind of an enduringbenefit to the company as a revenue expenditurewhen the expenditure did not bring into existenceany capital asset for the company. The asset whichwas created belonged to somebody else and thecompany derived an enduring business advantage byexpending the amount. In all these cases, theexpense has been looked upon as having been madefor the purpose of conducting the business of theassessee more profitably or more successfully. In thepresent case also, since the asset created byspending the said amounts did not belong to theassessee but the assessee got the businessadvantage of using modern premises at a low rent,thus saving considerable revenue expenditure for thenext 39 years, both the Tribunal as well as the HighCourt have rightly come to the conclusion that the expenditure should be looked upon as revenueexpenditure.” 13.We have heard counsel for both sides. 14.We are in complete agreement with the view taken by the Tribunal. 15.The issue is answered in favour of the assessee and against the department. 16.The appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Chouhan/73