Judgment

GUPTA, J. :- The question for decision in this case is whether the money contributed by the assessee, a public limited company, for the construction of a new road in the area where its factory is located to improve transport facilities is capital expenditure or revenue expenditure. The assessment year in question is 1964-65, the relevant accounting period being the financial year ended March 31, 1964. The assessee company is engaged in the manufacture of chemicals; it had been receiving and despatchng materials required for and produced in its factory through lorries. The assessee along with three other public undertakings approached the Government of Kerala for laying a new road from Kalamasseri to Udyogamadal; this area where the assessee factory is situate was not at the material time served by pucca roads. It was agreed that the Government of Kerala would bear the cost of the acquisition of the land and 25 per cent of the cost of construction. The total cost to be shared by the four companies was Rupees 1,04,550/- and the assessees share came to Rs. 26,100/-. The assessee company sought to deduct this amount from its total income claiming this as revenue from its total income claiming this as revenue expenditure for the year in question. The Income-tax Officer disallowed the claim holding that the assesses contribution was capital expenditure. The Appellate Assistant Commissioner took the same view. The Appellate Tribunal, mainly relying on the decision of the Calcutta High Court in Commr. of Income-tax v. Hindustan Motors Ltd., (1968) 68 ITR 301 (Cal), held that the assessee was entitled to deduct the amount as revenue expenditure. At the instance of the Commissioner of Income-tax, Kerala Ernakulam, the Tribunal referred the following question to the High Court of Kerala under Section 256 (1) of the Income-tax Act, 1961.

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was legally justified in allowing the expenditure of Rs. 26,100/- being the respondents contribution to government for constructing a road as a permissible deduction under Section 37 (1) of the Income-tax Act, 1961."

The High Court* held that the assessee in this case obtained an advantage of an enduring nature by the construction of the road and, therefore, the amount contributed was capital expenditure. The High Court accordingly answered the question in negative and against the assessee. In this appeal, brought on a certificate under Section 261 of the Income-tax Act, 1961, the assessee challenges the correctness of the answer given by the High Court to the question.

* 1971 Ker LJ 740

2. The authorities both in this country and in England have pointed out the difficulties in formulating precise rules for distinguishing capital expenditure from revenue expenditure. The line of demarcation has been found to be very thin. Certain broad tests have however been laid down, and of them the test suggested by Viscount Cave, L. C. in Atherton v. British Insulted and Helsby Cables Ltd., (1925) 10 Tax Cas 155 appears to have been largely accepted in this country. This Court in Assam Bengal Cement Co. Ltd, v. Commr. of Income-tax, West Bengal, (1955) 27 ITR 34; Sitalpur Sugar Works Ltd. v. Commr. of Income-tax, Bihar, (1963) 49 ITR 160 (SC) and a number of other decisions have adopted the test as laid down in Athertons case, to refer again to these often-quoted lines from Viscount Caves Judgment "when an expenditure is made ...... 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". Referring to Athertons case and certain other authorities on the distinction between capital expenditure and revenue expenditure and the tests to be applied, this Court is Assam Bengal Cement Co. Ltd.