Expenditure incurred by an assessee for the purpose of improving the profitability of its existing profit-making apparatus and to ensure supply of raw materials for more effective running of its business and for better productivity, is to be treated as revenue expenditure.

SHYAMAL KUMAR SEN, J.

( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961, the following question has been referred to this court for determination :"whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure incurred by the assessee-company on re-routing of the water pipeline is a revenue expenditure and is deductible expenditure"

( 2 ) THE facts as appear from the statement of case, inter alia, are as follows : the assessee-company carries on the business of manufacture of zinc slabs with sulphuric-acid and cadmium as by-products. The assessee-company included a sum of Rs. 4,77,080 under the head "repairs and maintenance and others" being expenditure included for the water pipeline including cost of pipes, labour charges and electrical inspection charges. The Income-tax Officer disallowed the said expenditure as capital expenditure.

( 3 ) ON an appeal having been preferred before the Commissioner of Income-tax (Appeals), it was stated that, during the summer season, the flow of water in the river Periyar is restricted and the sea water enters the Periyar river causing more salinity in the water, thereby making it impossible to use the river water near the factory area. For preventing the sea water entering the Periyar river every year, steps are taken for putting up a bund across the river but at times in certain years, the salinity increases in the river much earlier. This necessitates re-routing of the pipeline and in this process adding additional pipelines for taking the pipeline upstream of the river further away with temporary bunding arrangements where the saline-free water is available for the purpose of factory operations. In the relevant year, the salinity problem was acute and, therefore, it became essential to re-route the pipeline connection with some more additions and to take the line further upstream for drawing saline-free water for operation. It was submitted that similar course of action had been taken in the past and it is because of avoiding expenditure on such re-routing that a temporary bund is put up every year with the help of other business concerns similarly placed.

( 4 ) THE Commissioner of Income-tax (Appeals), on a consideration of the facts and submissions made, held that the expenditure incurred for the water pipeline is not an expenditure of a capital nature and that it was incurred in order to enable the assessee-company to carry on its business.

( 5 ) THE Tribunal found that the facts recorded by the Commissioner of Income-tax (Appeals) in his order have not been disputed before the Tribunal.

( 6 ) THE Tribunal further found that there already existed a pipeline for bringing saline-free water from the Periyar river to the factory of the assessee. In the relevant year, the salinity problem was acute and, therefore, it became necessary to re-route the pipeline connection and to take the pipeline further upstream for getting saline-free water for operation. The Tribunal found that, from the facts of the case, it is clearly established that the expenditure on re-routing the pipeline had to be incurred by the assessee-company in order to enable it to carry on the business. In fact, the finding recorded by the Commissioner of Income-tax (Appeals) has not been challenged before the Tribunal by the Department. The Tribunal further found that re-routing of the pipe was not a new feature. Similar course of action had to be taken in the past also. According to the Tribunal, it cannot be said that the expenditure incurred on re-routing the pipeline for the purpose of getting saline-free water for the factory resulted in a benefit of an enduring nature. The Tribunal accepted the finding recorded by the Commissioner of Income-tax (Appeals) that the expenditure incurred on re-routing of the pipeline is a revenue expenditure.

( 7 ) IT was submitted on behalf of the Revenue that the expenditure of Rs. 4,77,080 incurre

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