Expenditure incurred to secure an enduring advantage for a trade, such as shifting a factory to a better location, is capital expenditure, regardless of whether a new tangible asset is acquired. Depreciation is only allowable on tangible assets, not on the acquisition of a trade advantage.

A.K.SARKAR, J.

(1) THIS case does not seem to us to present any real difficulty. It arises out of a reference to the High Court of Patna of two questions both of which were answered by the High Court against the assessee, the appellant in this Court.

(2) THE appellant is a company manufacturing sugar. It had its factory originally at a place called Sitalpur. That place was found to be disadvantageous for the appellants business as sugar cane of good quality was not available in sufficient quantity in the neighbourhood and also as it suffered from ravages of flood. With a view to improve its business the appellant removed its factory from Sitalpur to another place called Garaul and in the process of dismantling the building and machinery, transportation from Sitalpur to Garaul and refitting the machinery at the latter place, it incurred a total expense of Rs. 3,19,766.00 in the year of account. In the assessment of its income-tax, it claimed a deduction of these expenses as revenue expenses. That claim was rejected. The questions referred concern these expenses.

(3) THE first question was this : "Whether the expenditure of Rs. 3,19,766.00 incurrcd by the assessee in dismantling and shifting the factory from Sitalpur and erecting the factory and fitting the machinery at Garaul was expenditure of a capital nature and not revenue expenditure within the meaning of section 10 (2) (xv) of the Income-tax Act ?"

(4) CONSIDERING the matter apart from the authorities, it seems to us impossible that the expenditure could be revenue expenditure. It was clearly not incurred for the purpose of carrying on the concern but it was incurred in setting up the concern with a greater advantage for the trade than it had in its previous set up. The expenditure was not incurred in earing any profit but only for putting its factory, that is, its capital, in better shape so that it might produce larger profits, when worked. It really went towards effecting a permanent improvement in the profit making machinery, that is, in the capital assets. It was, therefore, a capital expenditure and not a revenue expenditure.

(5) THE case, furthermore, is completely governed by authorities. We think it comes clearly within the well-known dictum of Viscount Cave in Atherton v. British Insulated and Helsby Cables Ltd (1). That "when an expenditure is made, not only once and for all, but 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 trealing such an expenditure as properly attributable not to revenue but to capital". The test formulated by Viscount Gave has been accepted by this Court: see Assam Bengal Cement Co. Ltd. v. The Commissioner of Income-tax West Bengal (2). Here the expenditure produced an enduring advantage in the shape of transfer to a better factory site, an advantage which enabled the trade to prosper and an advantage that could be expected to last for ever. It was an expense properly attributable to capital under Viscount Caves dictum.

(6) MR. Pathak did not question the authority of the test laid down in Athertons case (l), but said that that test had no application in the present case as it would not apply unless by the expenditure a material asset or a covenant or right in the nature of capital was acquired. We find neither principle nor authority to support this contention. If an expenditure incurred, say for acquiring an additional plant, is capital expenditure, an expenditure incurred in dismantling and refitting the existing plant at a better site would be equally capital expenditure. They would both be capital expenditure because both were incurred for increasing the capacity of the profit making machine to earn profits and neither was incurred for earning the profits themselves. In principle, therefore, there is no reaso