Payments made for acquiring additional power or loom hours, which enable the assessee to operate the profit-making structure for a longer period, are revenue expenditure.

Sharma, J.

1. The assessee-company carries on the business of growing and manufacture of tea. During the assessment year 1973-74, relevant to the accounting period ending March 31, 1973, the assessee claimed a deduction of Rs. 33,228 paid to the Assam Electricity Board against service charges for laying service, lines, etc. The ITO disallowed the above claim. The assessee went up in appeal before the AAC, which was dismissed. The asses-see carried the matter in further appeal to the Income-tax Appellate Tribunal, Amritsar Bench. Before the Tribunal reliance was placed on a judgment of the Supreme Court in Bombay Steam Navigation Co. (1953) Private Limited v. CIT [1965] 56 ITR 52. In that case, revenue expenditure had been given the following definition (headnote):

"In considering whether expenditure is revenue expenditure, the court has to consider the nature and the ordinary course of business and the objects for which the expenditure is incurred. The question whether a particular expenditure is revenue expenditure incurred for the purpose of the business must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition to the carrying on of the business, the expenditure may be regarded as revenue expenditure."

The Income-tax Appellate Tribunal, accordingly, accepted the appeal and allowed the deduction claimed by the assessee. At the instance of the Commissioner of Income-tax, Amritsar, the following question of law has been referred to us by the Tribunal for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 33,228 paid by the assessee to the Assam Electricity Board is allowable as a revenue expenditure ?"

We have heard the learned counsel for the parties.

2 The view taken by the Tribunal is unexceptionable. In Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC), the assessee-company was carrying on the business of manufacture of jute and was a member of the Indian Jute Mills Association. This association had been formed with the object of protecting the trade of its members by imposing restrictive conditions on the conduct of the trade and adjusting the production of the mills of its members. The members of the association had entered into an agreement under which a restriction was placed on the number of working hours per week for which the mills were entitled to work their looms. The working time agreement also provided that no signatory shall work for more than 45 hours per week and that the signatories to the agreement shall be entitled to transfer any part or wholly, their allotment of hours of work per week to any one or more of the other signatories. Under this agreement, the assessee in that case had purchased "loom hours" from two other mills for an aggregate sum of Rs. 2,03,255. This amount was claimed as. revenue expenditure. When this controversy came up before the Supreme Court, speaking for the Bench, Bhagwati J. observed (p. 12):

"We are conscious that in law as in life, and particularly in the field of taxation law, analogies are apt to be deceptive and misleading, but in the present context, the analogy of quota right may not be inappropriate. Take a case where acquisition of raw material is regulated by quota system and in order to obtain more raw material the assessee purchases the quota right of another. Now, it is obvious that by purchase of such quota right the assessee would be able to acquire more raw material and that would increase the profitability of his profit-making apparatus, but the amount paid for purchase of such quota right would indubitably be revenue expenditure, since it is incurred for acquiring raw material and is