Commissioner of Income Tax vs Makhan Sarmah Savapandit

Raghuvir, C.J.—The following question is referred to the court for an answer under Sub-section (1) of Section 256 of the Income Tax Act, 1961.

"Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 45,149 incurred by the assessee for installation of a new power line and equipment can, in law, be regarded as an expenditure allowable u/s 37 of the Income Tax Act, 1961 ?''"

Makhan Sarmah Savapandit, the assessee, in this case, manufactures and sells tea. In the past, he privately generated energy at a cost of 0.95 paise per unit for running his factory unit. Later, at his expense, current lines were laid from the Assam Trunk Road to his factory unit. The asses-see paid the Assam Electricity Board Rs. 45,149 and claimed under the Income Tax Act in the assessment year 1977-78 deduction of the amount of Rs. 45,149 as revenue expenditure.

The Income Tax Officer, without any discussion, held that the expenditure was capital expenditure. The appellate authority confirmed that order holding that the assessee secured enduring benefit by the investment made, and that therefore, the expenditure cannot be revenue expenditure. The Appellate Tribunal, on further appeal, held that the expenditure facilitated the supply of energy to run the factory unit of the assessee, and, therefore, allowed the appeal, It is in these circumstances, at the instance of the Revenue under Sub-section (1) of Section 256 of the Act, that the above question is referred to this court.

Whether an expenditure is capital or revenue, after numerous exercises by the Supreme Court in India, it was accepted in the case of Commissioner of Income Tax, U.P., Lucknow Vs. British India Corporation Ltd., Kanpur, that no test of universal application can be laid down." The test laid down in the leading case of the United Kindgom, Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155 was explained away in Empire Jute Co. Ltd. Vs. Commissioner of Income Tax,

"This test, as the parenthetical clause shows, must yield where there are special circumstances leading to a contrary conclusion and, as pointed out by Lord Radcliffe in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. [1965] 58 ITR 241 it would be misleading to suppose that in all cases, securing a benefit for the business would be, prima facie, capital expenditure ''so long as the benefit is not so transitory as to have no endurance at all''."

The enduring benefit test was further elucidated holding (at p. 10) : "If the advantage consists merely in facilitating the assessee''s trading operations or enabling the management and conduct of the assessee''s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be of revenue account, even though the advantage may endure for an indefinite future". The test of enduring benefit was thus considered not the sole test.

It is in this regard we see tests were laid down in two leading cases, Lakshmiji Sugar Mills Co. P. Ltd. Vs. Commissioner of Income Tax, New Delhi, and Travancore-cochin Chemicals Ltd. Vs. Commissioner of Income Tax, Kerala, The tests laid down in the former case was confined to the facts of the case in the latter case. In L.B. Sugar Factory and Oil Mills (P) Ltd., Pilibhit Vs. Commissioner of Income Tax , U.P., Lucknow, the latter case, was held to be a case on facts and the former decision in Lakshmiji Sugar Mills Co. P. Ltd. Vs. Commissioner of Income Tax, New Delhi, was resurrected. In this state of wobbling of authorities, true it is, that no test of universal application can be laid down by the courts.

In the instant case, the assessee was generating energy earlier at a cost of 0.95 per unit for the use of the factory unit. Now, electricity lines are laid down to run the factory efficiently. The fixed capital of the business is not touched. The question required to be answered is whether expenditure of Rs. 45,149 in such circumstances is capital expenditure. We see that the investment was made to run the factory efficiently.

We hold in the facts of the case that the expenditure is of revenue nature and answer the question in the affirmative, in favour of the assessee and against the Revenue. No costs.