Expenditure incurred for the construction of dams to prevent the recurrence of a disaster in a mine is capital expenditure and not revenue expenditure.

( 1 ) IN this reference under Section 66 (1) of the Indian Income-tax Act, 1922, the following questions have been referred:" (1) Whether, on the facts and circumstances of this case, the assessee was entitled to full depreciation allowance under Section 10 (2) (vi) of the Indian Income-tax Act, 1922, read with Rule 8 of the Rules thereto for the assessment years 1958-59 and 1959-60 ? (2) Whether, on the facts and in the circumstances of this case, the sum of Rs. 1. 65,424 was properly treated as revenue expenditure and allowed accordingly ?"

( 2 ) ON question No. 1, learned standing counsel appearing on behalf of the assessee did not seriously contest the position that in view of Rule 8 of the Indian Income-tax Rules, 1922, as construed by this court in the case of Anantapur Textiles Lid. v. Commissioner of Income-tax , it could not be disputed that the assessee will not be entitled to full depreciation as claimed. In the premises, the first question is answered in the negative and in favour of the revenue. We make it clear that the assessee will be entitled to depreciation for the relevant period as laid down in the Rules and not for the entire period.

( 3 ) SO far as the second question is concerned the relevant facts as appearing from the statement of the case and the annexures thereto can briefly be stated as follows : in the assessment year 1959-60, the previous year ending on the 31st May, 1958, the assessee spent a sum of Rs. 1,65,424 for the construction of dams. In the year in question there was a disaster in the mines. The mines department directed the assessee to carry out protective works for the prevention of recurrence of such disaster and the assessee had to carry out the same.

( 4 ) THE Income-tax Officer found that the said expenditure was of a capital nature and disallowed the same in the computation of the revenue expenditure.

( 5 ) ON appeal from the assessment, the Appellate Assistant Commissioner found as follows :". . . . . . there was a serious disaster in the immediately preceding assessment year as a result of which these dams had to be constructed under instructions of the mines department. It was felt that by construction of these dams recurrence of such disaster would be prevented. Therefore, the construction of the dams was done for protection of the mines as also for the safety of the labourers. Protection of the mine which was an asset to the appellant was certainly of a revenue expenditure and it could not be said that the expenditure on protection did bring into existence any new asset to the appellant. "

( 6 ) THE revenue preferred an appeal to the Tribunal. The Tribunal held as follows ;"the facts are that there was a serious disaster in the immediately preceding year as a result of which the assessee had to construct dams at a cost of Rs. 1,65,424 in compliance with the direction given by the mines department for prevention of recurrence of such disaster. Evidently, the dams were constructed for the protection of the mines as also for the safety of the labourers. We agree with the A. A. C. that the mines being a capital asset of the company, any expenditure incurred for the protection thereof would be a revenue expenditure"

( 7 ) MR. Suhas Sen, learned counsel on behalf of the revenue, contends that on the facts found in the instant case the expenditure incurred for the purpose of construction of the dams must be held to be of capital nature. He relied on several decisions in support of his contentions. The first decision cited by him was in the case of Avon Beach and Cafe Lid. v. Stewart (H. M. Inspector of Taxes) [1950] 31 TC 487. In that case the assessee ran a cafe on the seashore and had erected a barrier of wooden piles in front of the cafe on the seashore as a protection against erosion by the sea. It was held that the decision of the Commissioners that the expenditure incurred for the erection of the said barrier was of a capital nature was correct.

( 8 ) V