Expenditure incurred on stowing is revenue expenditure and not capital expenditure.

1. This is a reference under Sec. 66(1) of the Income-tax Act. The question referred for the opinion of the High Court is "whether the sum Rs. 21,911 claimed as stowing expenses is capital expense or revenue expense?"

2. The assessee, Messrs. Kirkend Coal Company is a firm carrying on coal mining business. During the accounting year ending with the 31st December, 1956, they spent a sum of Rs. 21,911 in stowing operations. It is common ground that the stowing in respect of which the aforesaid amount was spent was not undertaken as is generally done in connection with depillaring operations; it was rather undertaken in the process of extraction of coal as a business necessity or expediency. Indeed the Department of Mines required the stowing of certain galleries near the pit-mouth to be done before permission for working the colliery during the accounting year could he given, and, accordingly the assessee expended the aforesaid amount on stowing for being able to work the colliery. In these circumstances, the assessee claimed that the aforesaid expenditure having been incurred for the purpose of its business was revenue expenditure and fell within Sec.10(2)(xv) of the Income-tax Act, 1922. The Income-tax Officer as well as the Appellate Assistant Commissioner on appeal by the assessee having held that the expenditure in question was in the nature of capital expenditure and was thus not a deductible allowance, the assessee preferred an appeal to the Income-tax Appellate tribunal which allowed the appeal and held as follows:

"Stowing is an operation carried out in the process of extraction of coal and unless it is carried out extraction of coal is not possible irrespective of the fact whether depillaring has been done or not in this year. This expenditure is, in our opinion, a revenue expenditure, as it is necessary for the purpose of extraction of coal."

At the instance of the Department, the Income-tax Appellate Tribunal has however stated a case and has referred the question set out above for the opinion of the High Court.

3 Viscount Cave, L. C., in Atherton V/s. The British Insulated and Helaby Cables Ltd., (1926) 10 Tax Cas 155 (192) has pointed out that an expenditure may be treated as properly attributable to capital, when it 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 unless however, there were special circumstances leading to an opposite conclusion. His Lordship further pointed out that the criterion suggested by Lord Denedin in Vallambrosa Rubber Co. Ltd. V/s. Farmer, (1910) 5 Tax Cas 529 to the effect that "in a rough way" it was "not a bad criterion of what is capital expenditure as against what is income expenditure to say that capital expenditure is a thing that is going to be spent once and for all and income expenditure is a thing which is going to recur every year" was, no doubt, often a material consideration but was not and was obviously not intended by Lord Dunedin to be a decisive one in every case; for it was easy to imagine many cases in which a payment, though made "once and for all" would be properly chargeable against the receipts for the year". On behalf of the Department, it has been urged that the present case answers fully the test laid down by Lord Cave in Athertons case because in this case apart from the fact that the expenditure was incurred once and for all a test which may not be decisive the stowing has brought into existence an advantage for the enduring benefit of the assessees trade or business in so far as it has made it possible for the assessee to continue extracting coal for several years Reliance was also placed on some other English cases and on the decision of the Supreme Court in the case of Assam Bengal Cement Co. Ltd. V/s. Commr. of Income-tax, West Bengal, (1955) 1 SCR 972 ( (S) AIR 1955 SC 89) which, it was claimed have applied the lest lad down by Lord Cave as aforesaid. It has