Standard Mills Co. Ltd. vs Commissioner of Income Tax

Dr. B.P. Saraf, J.—By this reference u/s 256(1) of the Income Tax Act, 1961, made at the instance of the assessee, the Income Tax Appellate Tribunal has referred the following three questions of law to this court for its opinion :

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the expenses amounting to Rs. 12,507, Rs. 85,777 and Rs. 10,077 incurred by the assessee for various social welfare measures were not allowable as revenue expenditure for the assessment years 1975-76, 1976-77 and 1977-78, respectively ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the amount of Rs. 1,55,000 paid by the assessee-company to the erstwhile occupant of the land acquired from the Bombay Municipal Corporation in exchange of the assessee''s land was not allowable as revenue expenditure ?

(iii) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal had rightly held that the assessee is not entitled to weighted deduction u/s 35B of the Income Tax Act, 1961, in respect of (i) export freight and expenses amounting to Rs. 33,10,138 and (ii) bank guarantee commission amounting to Rs. 3,000 for the assessment year 1977-78 ?"

The first question is covered by the decision of this court date April 23, 1993, in the case of Voltas Ltd. Vs. Commissioner of Income Tax, (income tax Reference No. 259 of 1980). Following the same, it is answered in the affirmative, i.e., in favour of the Revenue and against the assessee.

The third question is also covered by the decision of this court in the case of M.H. Daryani Vs. Commissioner of Income Tax, and a number of other decisions of this court on the interpretation of section 35B of the Income Tax Act. Following the same, we answer this question also in the affirmative, i.e., in favour of the Revenue and against the assessee.

The only question left for consideration is question No. 2. The controversy herein pertains to the claim of the assessee for deduction of an amount of Rs. 1,55,000 paid by it to the occupier of the land which it had obtained from the Bombay Municipal Corporation in exchange for its own plot of land to get vacant possession of the same. The question that arises for consideration is whether such payment is revenue expenditure or an expenditure of capital nature.

Mr. Dilip Dwarkadas, learned counsel for the assessee, submits that all the authorities below including the Tribunal erred in law in holding that by incurring the above expenditure the assessee derived an enduring benefit. The payment of the amount in question, according to learned counsel, was made not to the Bombay Municipal Corporation from whom the land had been obtained but to the occupier of the said land for getting vacant possession thereof. The purpose of this payment, according to counsel, was to facilitate the assessee''s business by providing an approach road to its premises. In this view of the matter, it is submitted that such payment amounts to a revenue expenditure and not an expenditure of capital nature.

We have carefully considered the submission of counsel for the assessee. What is capital expenditure and what is revenue expenditure is the subject-matter of perpetual controversy before the Supreme Court and the High Courts. It is well-settled that no test including the test of enduring benefit is of universal application. The controversy regarding the nature of expenditure has to be decided in each case on a proper consideration of the facts and circumstances thereof. In the instant case, the expenditure in question was incurred by the assessee for getting vacant possession of the plot of land which it had acquired in exchange for its own plot from the Bombay Municipal Corporation. The admitted position is that the plot in question was in the occupation of some third person who had been running a laundry business thereon. The above amount was paid to the occupier of the land. It is evident that payment was made to the occupier to get vacant possession of the land. It had the effect of enhancing the value of the land. Such expenditure incurred for acquisition of the land. Getting vacant possession of the land from the occupier is undoubtedly an enduring benefit. It has the effect of permanently enhancing the value of the land which is a fixed asset. That being so, there is hardly any scope to hold such an expenditure as a revenue expenditure. In that view of the matter, we are of the clear opinion that the Tribunal was justified in holding the expenditure in question to be expenditure of capital nature and in not allowing deduction in respect of the same in the computation of the business income of the assessee. We, therefore, answer question No. 2 in the affirmative, i.e., in favour of the Revenue and against the assessee.

Having regard to the facts and circumstances of the case, we make no order as to costs.