1971 Supreme(Cal) 186

HIGH COURT OF CALCUTTA
SHANKAR PRASAD, A. N. SEN
KALYANJI MAVJI AND CO. - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 109  Of  1965
Decided On : AUGUST 05, 1971

Expenditure incurred by an assessee in the course of its trade to enable the assessee to carry on its trading operation should usually be considered to be revenue expenditure when other necessary conditions are satisfied.

Headnote:

INCOME TAX - Expenditure incurred by assessee on renovating the buildings, reconditioning the machinery and clearing the land of debris in one of its collieries, known as South Samla Colliery, for restarting the operation of digging coal therefrom, after a long lapse of time, during which period this colliery had remained under military occupation, is in the nature of revenue expenditure and not capital expenditure.

Fact of the Case:

The assessee, a registered firm, owned several collieries in West Bengal and Bihar. One of such collieries owned by the assessee is known as South Samla Colliery. South Samla Colliery was under military occupation since 1942 and was derequisitioned in 1955. This colliery could not be worked by the assessee during these years of military occupation. Expenses, however, had been claimed by the assessee during the period of military occupation on account of minimum royalty, surface rent and salary for watch and ward purposes of this colliery and had been allowed as business expenditure of the assessee by the taxing authority. The relevant assessment year is 1959-60, the corresponding previous year, i. e. , the accounting year of the assessee being the Gujarati Dewali 2014 (beginning with 24th of October, 1957, and ending on 12th of November, 1958 ). During the relevant period under consideration, the assessee incurred certain heavy expenses amounting in all to Rs. 1,61,742 on renovating the buildings, reconditioning the machinery and clearing the land of the debris that had accumulated for over a number of years at the said South Samla Colliery for the purpose of putting the machinery in working order as well as the whole of that colliery in general to a state of resumption of mining operations from the said colliery. The assessee had claimed deduction of the said entire amount as business expenditure. The Income-tax Officer disallowed the claim of the assessee on the ground that the said expenditure incurred by the assessee was of a capital nature.

Finding of the Court:

The expenditure in question did not result in the acquisition of any new asset for the assessee. The expenditure in question was incurred for renovating the buildings, reconditioning the machinery and for removing the debris and the further finding is that out of the total expenditure of Rs. 1,61,742 disallowed, a sum of Rs. 66,937 was spent on account of salaries and wages including labour benefit and the sum of Rs. 94,805 was spent for purchases of various stores, machinery repairs, dhowrah repairs, etc. There is no finding that there was any new construction or any addition or alteration to the existing building and the only finding is that the buildings were renovated. There is also no finding of any installation of any new machine or of any addition to the existing machinery by installation of any other machine not already in existence. The only finding is that the machinery had been reconditioned. The removal of the debris does not and cannot result in the acquisition of any new asset for the assessee. The two sums mentioned in the findings of the Income-tax Officer give further particulars and descriptions on what account the same were spent and they make the position abundantly clear. On the basis of the aforesaid findings there can be no escape from the conclusion that the expenditure in question did not result in the acquisition of any new asset for the assessee.

Issues: Whether the expenditure incurred by the assessee on renovating the buildings, reconditioning the machinery and clearing the land of debris in one of its collieries, known as South Samla Colliery, for restarting the operation of digging coal therefrom, after a long lapse of time, during which period this colliery had remained under military occupation, is in the nature of capital expenditure or not.

Ratio Decidendi: The expenditure in question was incurred by the assessee for the purpose of the assessee's concern already in existence, for the purpose of carrying on the same and not for acquiring any concern not in existence. The aim and object of the expenditure were not to acquire any new asset, but to carry on the assessee's existing concern by working one of its existing mines which the assessee had not been able to work for a length of time for reasons beyond its control. The only object of the assessee was to resume operation in one of its existing units for facility of trade and the expenditure in question aimed only at removing the impediments which had cropped up, to enable the assessee to work the said existing unit of production of coal; and the aim and object of the expenditure were not to acquire any new asset and no new asset in fact was acquired as a result of the expenditure in question. The expenditure in question did not bring into existence an asset or advantage for the enduring benefit of the business. The expenditure in question was made not for the purpose of bringing into existence any such asset or advantage, but for running the assessee's business or working it with a view to earn profits by resuming the operation of digging coal from the said South Samla Colliery. It is clearly a part of the assessee's working expenses and is laid out as part of the process of profit earning. The expenditure in question must, therefore, be considered to be revenue expenditure.

Final Decision: The question is answered in the negative, against the department, in favour of the assessee.