Judgement

GROVER, J.:- This is an appeal by special leave from a judgment of the Delhi High Court in an Income-tax Reference. The assessee, which is the appellant, is a private limited company carrying on the business of manufacture and sale of sugar. It has two sugar mills one at Maholi (Sitapur) and the other at Raja-ka-Sahaspur (Moradabad). The head office of the assessee is at New Delhi. During the accounting period relating to the assessment year 1956-57 sums of Rupees 75,000/- and Rs. 37,500/- were paid by the assessee to the Cane Development Council of the Sugarcane Department of the Government of Uttar Pradesh by way of contribution for road development between the various sugarcane producing centres and the sugar factories of the assessee. The revenue authorities found that these contributions were intended to be applied for the construction and development of roads between the sugarcane producing centres and the sugar mills and held that these amounts constituted capital expenditure and could not be allowed as an admissible deduction while computing the total income of the assessee. The Appellate Tribunal upheld the order of the departmental authorities. On an application being moved the Tribunal referred two questions of law to the High Court. We are concerned only, in the preset case, with the second question which is as follows:

"Whether the sums of Rs. 75,000 and Rs. 37,500 paid to the Road Development Fund set up by the Government of U. P. were rightly disallowed as items of capital expenditure?"

The High Court held that the aforesaid expenditure could not be regarded as revenue expenditure and the answer was returned against the assessee.

2. According to the assessee certain facts are fully established. These are: (1) the expenditure incurred was for the development of roads and the assessee was under an obligation to make the aforesaid contributions under the provisions of the U. P. Sugarcane Regulation of Supply and Purchase Act, 1953; (2) the roads were originally the property of the government and remained so after the improvement had been made, (3) the sole reason for which the assessee had made the contribution was that the improved roads would facilitate the transportation of cane from the cane producing centres to the premises of the mills and also the factories of the assessee: and (4) the expenditure was incurred for reasons of commercial expediency and for the benefit of the day to day business of the assessee.

3. According to the High Court it was admitted on behalf of the assessee that if expenditure had been incurred by it for building roads of its own it would be capital expenditure. The High Court could see no difference if expenditure was incurred under compulsion or even without compulsion if the roads were built for facilitating transportation and improving the business and the flow of supply to and from the factories of the assessee.

4. We are unable to agree with the reasoning or the conclusion of the High Court. The general principles governing the determination of the question whether an expenditure is in the nature of capital or revenue expenditure are well known. Where expenditure is incurred while the business is being carried on and not for its extension or for the substantial replacement of its equipment the position would be as follows:-

"If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of brining into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure." (Vide Assam Bengal Cement Co. Ltd. v. Commr. of Income-tax, West Bengal, 27 ITR 34 at p. 45.

The argument on behalf of the Revenue is that the expenditure which was incurred by the assessee in the present case was intended for bringing