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HIGH COURT OF CALCUTTA
BANERJEE, K.L.ROY, JJ.
Commissioner Of Income Tax - Appellant
Versus
Hindusthan Motors Ltd. – Respondent
Appeal No : IT Ref. No. 20 of 1964
Decided On : Sep 01, 1967
INCOME TAX - Expenditure incurred by assessee to induce Government to repair approach road - Whether capital expenditure or revenue expenditure - Held, revenue expenditure - Expenditure incurred to facilitate transport of cars manufactured in assessee's factory - Not an expenditure to bring into existence a capital asset or advantage of enduring benefit to assessee - Expenditure incurred wholly and exclusively for assessee's business.
Fact of the Case:
The assessee, a manufacturer of motor cars, had a factory near a Grand Trunk Road. The approach road to the factory, which belonged to the Government, fell into disrepair, causing transportation difficulties for the assessee. The Government was not willing to meet the expenses for the repair of the road. The assessee offered to contribute Rs. 39,770 for the improvement of the road, which was accepted by the Government. The assessee paid the amount to the Government and claimed it as a deduction under s. 10(2) (xv) of the Indian IT Act, 1922. The ITO disallowed the claim, treating the expenditure as capital expenditure. On appeal, the AAC affirmed the order of the ITO. The Tribunal allowed the appeal, holding that the expenditure was not capital expenditure but was incurred wholly and exclusively for the purpose of the assessee's business.
Finding of the Court:
The Court held that the expenditure incurred by the assessee was revenue expenditure and not capital expenditure. The Court observed that the expenditure was incurred to facilitate the transport of cars manufactured in the assessee's factory and not to bring into existence a capital asset or advantage of enduring benefit to the assessee. The Court further observed that the expenditure was incurred wholly and exclusively for the assessee's business.
Issues: Whether the expenditure incurred by the assessee to induce the Government to repair the approach road was capital expenditure or revenue expenditure.
Ratio Decidendi: The Court held that the expenditure incurred by the assessee was revenue expenditure and not capital expenditure. The Court observed that the expenditure was incurred to facilitate the transport of cars manufactured in the assessee's factory and not to bring into existence a capital asset or advantage of enduring benefit to the assessee. The Court further observed that the expenditure was incurred wholly and exclusively for the assessee's business.
Final Decision: The Court answered the question referred to it in the affirmative and in favor of the assessee.
BANERJEE, J.
1. This reference, under s. 66(1) of the Indian IT Act, 1922, has been made under circumstances hereinafter related.
2. The assessee is a manufacture of motor cars and has a factory within the territorial limits of Kotrang Municipality. The location of the factory is a little distance away from the Grand Trunk Road. There is an approach road from the Grand Trunk Road to the factory premises of the assessee which road belongs to the Government of West Bengal. The said approach road fell into disrepair and began to cause transportation difficulties to the assessee. The Government was not prepared to meet the expenses for the repair of the road. Thereupon, the assessee offered to contribute a sum of Rs. 39,770, namely, the amount necessary for improvement of the said approach road. The offer was accepted by the Government. Thereafter, there was a formal written agreement dated August 14, 1959, made between the Government and the assessee under the terms whereof :
(1) the sum of Rs. 39,770 was to be spent for the improvement of the approach road and not for usual repairs; (2) in consideration of the sum being advanced by the assessee, Government would undertake to keep the said road in proper repairs.
The assessee paid the said amount to the Government and in its return of income, for the asst. yr. 1956-57 (the relevant previous year being the year ending on March 31, 1956), claimed the amount as expenditure deductible under s. 10(2) (xv) of the Indian IT Act.
3. The ITO treated the expenditure as capital expenditure and disallowed the claim for deduction. On appeal by the assessee, the order of the ITO, in this respect, was affirmed by the AAC .Thereupon, the assessee preferred a second appeal before the Tribunal, which allowed the appeal with the following observation :
"In our opinion, the expenditure cannot be a capital expenditure. The assessee, as we have stated above, was not the owner of the road and the improvement which was being made was being done by the Government. The assessee of course contributed towards the costs and expenses for the improvement of the road but the enduring benefit, if at all, went to the owner of the road and not to the assessee the only benefit which accrued to the assessee was that the road got improved and could now be used well by it for its business purposes. Thus no capital asset having been built up by the expenditure, it could not be called a capital expenditure. This finding of ours, however, does not dispose of the question in issue before us. We have still got to see whether the amounts is allowable as a business expenditure under s. 10(2) (xv) of the IT Act.....
4. In our opinion, the contention laid on behalf of the assessee must be upheld. IN order to ascertain whether an expenditure has been incurred wholly and exclusively for the purposes of business, one must look to the direct concern and direct purpose for which the money is laid out. It is always possible that the expenditure while benefiting the assessee may confer equal benefits on other person also. This, however, will not change the character of the expenditure incurred by the assessee, if the same had been expended solely with a view to benefit the carrying on of his business. The purpose must be the purpose of the assessee's own business and the expenditure must have been incurred for that purpose. On the facts, as we have stated above, it is clear that the assessee spent that money not with any idea of benevolence but with a clear purpose before it, namely, to facilitate the transport of the cars manufactured in its factory. It is true that the assessee was not under any legal obligation to improve or repair the road; this, however, is no criterion for judging the issue before us. A sum of money expended even if not by necessity but voluntarily, but if the same facilitated the carrying on of the assessee's business, it was surely an expenditure wholly and exclusively incurred for the purpose of the bu
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