Karnataka High Court
Hindustan Machine Tools Ltd. vs Commissioner Of Income-Tax, ... on 17 March, 1988
Equivalent citations: ILR1988KAR2012, [1989]175ITR220(KAR), [1989]175ITR220(KARN), 1988(3)KARLJ460
JUDGMENT Balakrishna, J.
1. In these three references which have been made under section 256(1) of the Income-tax Act, 1961 ("the Act"), the following questions of law arise for consideration :
2. At instance of the assessee :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a sum of Rs. 3,61,236 contributed towards the cost of construction of a road is not an admissible deduction in computing the business income ?"
3. At the instance of the Department :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the Commissioner's (Appeals) order who held that depreciation has to be allowed on increase in value of the assets due to fluctuation in exchange rate ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing a sum of Rs. 75,600 paid as filing fee as 'revenue expenditure' ?
(3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in upholding the order of the Commissioner (Appeals) who held that the sum of Rs. 1,66,184 being development and commissioning expenses should be treated as revenue expenditure ?
(4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the Income-tax Officer was not justified in restricting the relief under section 80J on pro rata basis ?"
4. I shall, at first, answer the four questions referred at the instance of the Revenue.
(i) The first question is covered by the decision of this court against the Revenue in CIT v. Motor Industries Co. Ltd. (ITRC Nos. 178 to 180 of 1979, disposed of on 12-2-1986 - [1988] 173 ITR 374 (Kar)), and is, therefore, answered in the affirmative and against the Revenue;
(ii) The second question relates to the expenditure incurred by way of remitting filing fee to the Registrar of Companies in respect of enhancement of the authorised share capital of the company. Following the view taken by the Himachal Pradesh High Court in Mohan Meakin Breweries Ltd. v. CIT (No. 2) [1979] 117 ITR 505 (HP), the Appellate Assistant Commissioner disallowed the claim. The Tribunal followed the view taken by the Madras High Court in CIT v. Kishenchand Chellaram (India) P. Ltd. and allowed it as revenue expenditure. In coming to the conclusion, the Madras High Court has applied the ratio enunciated by the Supreme Court in India Cements Ltd. v. CIT . I am in respectful agreement with the view expressed by the Madras High Court. Accordingly, I answer the second question in the affirmative and against the Revenue :
(iii) The third question is covered by the decision of this court in CIT v. Hindustan Machine Tools (ITRC No. 295 of 1979, disposed of on 2-12-1987 - [1989] 175 ITR 216 (supra)), against the Revenue and is, therefore, answered in the affirmative and against the Revenue;
(iv) The fourth question is covered by the decision of this court in CIT v. Mysore Petro-Chemical Ltd. [1984] 145 ITR 416, against the Revenue and is, therefore, answered in the affirmative and against the Revenue.
5. I now proceed to consider the question referred to us at the instance of the assessee, which is, whether the Tribunal was right in holding that a sum of Rs. 3,61,236 contributed by the assessee towards part of the cost of the construction of the road not belonging to it is not an admissible deduction in computing its business income.
6. The material facts of these cases are set out below :
7. Hindustan Machine Tools Limited, which is a public sector undertaking, is the assessee-company common to all the three cases. The assessee-company together with Bharat Electronics Limited and the Bangalore Development Authority made its individual contribution of a sum of Rs. 3,61,236 for the construction of the road linking Hebbal and Jalahalli, where the Hindustan Machine Tools Units I and II are located. The contribution of Rs. 3,61,236 made by the assessee-company was at the instance of the Karnataka Government. The assessee claimed that the said contribution was in the nature of revenue expenditure. However, the Income-tax Officer took a different view and held that it was capital expenditure. According to the Income-tax Officer, there is absolutely no statutory obligation on the part of the assessee to bear any such expenditure for the construction of the road and that the construction has distinct advantage to the assessee since the present road belongs to the Indian Air Force and passes through the railway crossing resulting in loss of man-hours. Even though the road may not belong to the assessee, the construction of the road brought an enduring benefit to the assessee. The Income-tax Officer was of the view that the facts of the assessee's case are identical with the facts in the case of Travancore-Cochin Chemicals Ltd. v. CIT . Against the impugned orders of the Income-tax Officer, the assessee preferred appeals before the Commissioner of Income-tax who confirmed the impugned orders. The Commissioner of Income-tax held that there was no compulsion on the assessee to incur the expenditure and that by the construction of the road, the assessee obtained an enduring advantage. Thereafter, the assessee preferred appeals before the Income-tax Appellate Tribunal. The Tribunal held that the ratio of the decision in the case of Travancore-Cochin Chemicals Ltd. v. CIT [1977] 106 ITR 900, is apposite to the facts of these cases and that the expenditure incurred was capital in nature. Thus, the Tribunal upheld the orders of the Commissioner of Income-tax.
8. The circumstances which necessitated the construction of the road could be gathered from the proceedings of the board meeting of Hindustan Machine Tools, dated July 24, 1970, vide annexure-B.
9. Hindustan Machine Tools had been using all along a road belonging to the Defence Department, which took off from Bangalore-Poona highway at the location of the Indian Institute of Science. This highway, which originally had only one level-crossing, was added with one more level-crossing. The road was narrow measuring 18 feet in width having a treated surface remaining undeveloped for a number of years. Hindustan Machine Tools experienced considerable difficulties in using he existing road. Meanwhile, the lands situated on either side of the road had been developed without proper planning and in a haphazard way particularly near Mathikere and Gokul posing serious traffic hazards and problems, resulting in accidents involving Hindustan Machine Tools motor vehicles causing damage to most of the Hindustan Machine Tools vehicles, besides fatal accidents. Since the road was very narrow, the Hindustan Machine Tools vehicle could not be driven beyond a speed of 10 miles per hour. This resulted in considerable loss of time in transporting the employees to and from the factory. Further, on account of two level-crossings, the movement of the vehicles was affected by abnormal delay resulting in loss of precious man-hours at the beginning of the shifts. During 1969-70, it was estimated that there was a loss of 60,000 man-hours on account of the aforesaid reasons. Both Hindustan Machine Tools and Bharat Electronics Limited (another public sector undertaking) suggested to the Defence authorities for handing over the highway to the State Government, so that they could persuade the State Government to undertake developmental activities such as widening of the highway, construction of overbridges, development of marginal lands, etc. There was also the reasonable probability of the highway being closed during an emergency to meet the Defence requirements prohibiting public use. Ultimately, the Defence authorities relented and agreed to hand over the highway to the State Government. Thereafter, the State Government took over the highway and the erstwhile City Improvement Trust Board of Bangalore (presently known as Bangalore Development Authority) prepared an estimate for the formation of an approach road from Tumkur road to Bharat Electronics Limited up to railway crossing. Hindustan Machine Tools, Bharat Electronics Limited and City Improvement Trust Board agreed to share equally the expenditure involved. The State Government approved the estimate submitted by the City Improvement Trust Board and gave sanction for the construction of the approach road by its order dated June 13, 1973, vide annexure - A. Thereafter, the road came into existence by the joint venture of Hindustan Machine Tools, Bharat Electronics Limited and City Improvement Trust Board (Bangalore Development Authority).
10. Learned counsel for the assessee-company produced the copy of the proceedings of the Government of Mysore (Karnataka) under order No. HMA/10/MNJ/73 dated June 13, 1973, which reads as follows :
ANNEXURE - A "PROCEEDINGS OF THE GOVERNMENT OF MYSORE Sub : Estimate for formation of an approach road from Tumkur Road to Bharat Electronics Ltd. up to railway crossing.
ORDER NO. HMA/10/MNJ. 73, DATED : BANGALORE :
THE 13TH JUNE, 1973.
Read : Correspondence ending with letter No. CITB/BO/4097/72-73, dated 5th March, 1973, from the Chairman, City Improvement Trust Board, Bangalore.
PREAMBLE :
The Chairman, City Improvement Trust Board, Bangalore, has forwarded an estimate amounting to Rs. 21 lakhs for the formation of an approach road from Tumkur road to Bharat Electronics Ltd. up to Railway crossing for sanction of the Government. The work will be executed by the City Improvement Trust Board, Bangalore, except the railway bridge portion which will be done by the Railways. The Hindustan Machine Tools Ltd. and Bharat Electronics Ltd. have countersigned the estimate for Rs. 21 lakhs and have agreed to share one-third of the cost of the estimate. The above institution and the City Improvement Trust Board, Bangalore, have also agreed to share equally the cost of the bridge portion of the work. They have also agreed to pay an amount of Rs. 1 lakh each as an initial contribution.
ORDER Sanction is accorded to an estimate amounting to Rs. 21 lakhs (Rupees twenty-one lakhs only) for the work of formation of an approach road from Tumkur road to Bharat Electronic Limited up to Railway crossing. The expenditure involved shall be met as under :
1. One-third of the cost being by the Hindustan Machine Tools;
2. One-third of the cost being met by the Bharat Electronics Limited :
3. One-third of the cost being met by the City Improvement Trust Board, Bangalore.
The work will be executed by the City Improvement Trust Board, Bangalore, except the railway bridge portion which will be done by the railways.
As regards the civil portion of the work, the City Improvement Trust Board, the Bharat Electronics Ltd. and the Hindustan Machine Tools shall pay an amount of Rs. 1 lakh (Rupees one lakh only) each as initial contribution.
BY ORDER AND IN THE NAME TO THE GOVERNOR OF MYSORE sd/- Under Secretary to Government, Health and Municipal Admn. Department."
11. The fact that the construction of the road was not for the exclusive benefit and advantage of the assessee-company only is not in dispute.
12. Learned counsel for the assessee strongly relied on the decisions of the Supreme Court rendered in L. H. Sugar Factory and Oil Mills (P.) Ltd. v. CIT and Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 and also on the decision in Lakshmiji Sugar Mills Co. Pvt. Ltd. v. CIT [1971] 82 ITR 376, and contended that though the advantages secured by the assessee-company along with others who have contributed for the construction of the road was of a long duration and an advantage beneficial to the business of the assessee, it was, however, not an advantage in the capital field at all since the assessee acquired neither a tangible nor an intangible asset and furthermore, there was no addition to, or expansion of, the profit-making apparatus of the assessee. Learned counsel also contended that the amount of Rs. 3,61,236 which was contributed by the assessee was for the purpose of facilitating and promoting the business of the assessee in order to make it more profitable and efficient and that it was an expenditure on revenue account.
13. Learned counsel for the Revenue placed reliance on the decision of the Supreme Court in Travancore-Cochin Chemicals Ltd. v. CIT , and also on the decision of this court in D. P. Chirania and Co. v. CIT [1978] 112 ITR 12, and argued that the expenditure incurred by the assessee is purely in the nature of capital expenditure and is exigible to tax.
14. Reliance was also placed by learned counsel for the assessee on the decision in Gwalior Rayon Silk Mfg. (Wvg). Co. Ltd. v. CIT [1988] 172 ITR 131, rendered by the High Court of Madhya Pradesh, wherein it was held on similar facts and circumstances that the contribution made by the assessee towards the construction of a road and tube-wells was not of a capital nature but was a revenue expenditure for which the assessee was entitled to deduction claimed by him under section 10(2)(xv) of the Act.
15. In L. H. Sugar Factory and Oil Mills (P.) Ltd. v. CIT , the Supreme Court held as follows (p. 298) :
"The Revenue relied on the celebrated test laid down by Lord Cave L. C. in British Insulated and Helsby Cables Ltd. v. Atherton [1925] 10 TC 155 (HL) at p. 192, where the learned law Lord stated :
'When an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade,... there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital.' This test enunciated by Lord Cave L. C. is undoubtedly a well-known known test for destinguishing between capital and revenue expenditure, but it must be remembered that this test is not of universal application and, as the parenthetical clause shows, it must yield where there are special circumstances leading to a contrary conclusion. The non-universality of this test was emphasised by Lord Radcliffe in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. [1965] 58 ITR 241 (PC), where the learned law Lord said in his highly felicitous language that it would be misleading to suppose that in all cases securing a benefit for the business would be, prima facie, capital expenditure so long as the benefit is not so transitory as to have no endurance at all. It was also pointed out by this court in Empire Jute Co. Ltd v. CIT (C. A. No. 1191 of 1974 decided on 9th May, 1980 ), thus :
'There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assesee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future'."
16. It is, therefore, to be seen that the test of enduring benefit is not a conclusive test and it cannot be applied in a mechanical way without regard to the particular facts and circumstances of the case on hand.
17. In the said decision, the Supreme Court also referred to the decision rendered in Lakshmiji Sugar Mills Co. Pvt. Ltd. v. CIT , wherein the facts of the case were very similar to the facts of the case in L. H. Sugar Factory and Oil Mills (P.) Ltd. v. CIT . The only difference between the facts of L. H. Sugar Factory and Oil Mills (P.) Ltd. v. CIT , and the facts of Lakshmiji Sugar Mills Co. Pvt. Ltd. v. CIT , was that there was a statutory obligation in Lakshmiji Sugar Mills' case [1971] 82 ITR 376, for contribution by the assessee for the construction and development of roads between the sugarcane producing centres and the sugar factory of the assessee. However, this aspect of the matter had no bearing on the decision as to whether the expenditure incurred was of a revenue nature or capital nature.
18. In the case of D. P. Chirania and Co. v. CIT [1978] 112 ITR 12 (Kar), the facts of the case do not bear similarity to the facts of the instant cases. In the said case, it was held that there wasno material whatsoever before the Tribunal to hold that the object of constructing the roads was to serve the business of not only the assessee but also of others. It was further held that on an appreciation of the whole set of circumstances and of the guiding factors, the outlay must be held to belong to the structure and organisational set-up of the business of the assessee. The outlay was, therefore, held to be of a capital and not of revenue nature. It appears to me that the decision of this court in Chirania's case is of no assistance to the Revenue in view of the subsepuent decision Supreme Court in L. H. Sugar , which is directly on the point arising for consideration in this case and also since the fact-pattern and circumstances of that case and this case are strikingly similar.
19. Learned counsel for the Revenue, however, argued that the ratio of the decisions of the Supreme Court in Travancore-Cochin Chemicals' case , is apposite to this case and should be followed.
20. I am unable to agree,for in the case of L. H. Sugar [1980] 125 ITR 293, decided subsequently, the Supreme Court reiterated the ratio in Lakshmiji Sugar Mills , and explained the decision in Travancore-Cochin Chemicals' case [1977] 106 ITR 900, thus (p. 301 of 125 ITR) :
"Moreover, we find that the parenthetical clause in the test formulated by Lord Cave L. C. in Atherton's case [1925] 10 TC 155 (HL), was not brought to the attention of this court in Travancore-Cochin Chemicals' case with the result that this court was persuaded to apply that test as if it were an absolute and universal test regardless of the question applicable in all cases irrespective of whether the advantage secured for the business was in the capital field or not."
21. Therefore, I am found to follow the ratio in L. H. Sugar , and hold that the expenditure incurred by the assessee, for formation of the road, not belonging to the assessee, is an admissible revenue expenditure.
22. In L. H. Sugar Factory and Oil Mills P. Ltd. v. CIT the proposition of law which fell for consideration is as follows (at p.296) :
"Whether, on the facts and circumstances of the case, the sums of Rs. 22,332 and Rs. 50,000 were admissible deduction in computing the taxable profits and gains of the company's business ?"
23. The circumstances leading to the reference of the above question for the opinion of the court are as follows :
24. In the year 1952-53, a dam was constructed by the State of Uttar Pradesh at a place called "Deoni" and a road "Deoni-Dam-Majhala" was constructed connecting the Deoni Dam with Majhala. The collector requested the assessee to make some contribution towords the construction of the Deoni Dam and the Deoni Dam-Majhala road and pursuant to this request of the collector,the assessee contributed a sum of Rs. 22,332 during the accounting year ending September 30, 1955. The assessee also contributed a sum of Rs. 50,000 to the State of Uttar Pradesh during the same accounting year towards meeting the cost of construction of roads in the area around its factory under a sugarcane development scheme promoted by the Uttar Pradesh Government as part of the Second Five Year Plan. In the course of the assessment to income-tax for the assessment year 1956-57, the assessee claimed deduction of these two amounts of Rs. 22,332 and Rs. 50,000 as deductible expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Income-tax Officer disallowed the claim for deduction on the ground that the expenditure incurred was of capital nature and was not allowable as a deduction under section 10(2)(xv). The assessee appealed to the Appellate Assistant Commissioner unsuccessfully and, consequently, the assessee appealed before the Tribunal. Since there was a divergence of opinion between the two Members of the Tribunal on the question before them, the question was referred to a third Member who did not go into the question whether the expenditure incurred by the assessee was in the nature of capital or revenue expenditure but took an entirely different view and held that the contribution was made by the assessee as a good citizen just as any other person would and it could not be said that the expenditure was laid out wholly and exclusively for the purpose of the business of the assessee. However, the third Member, in this view, agreed with the conclusion reached by the Accountant Member and held that both the amounts of Rs. 22,332 and Rs. 50,000 were not allowable as deductible expenditure under section 10(2)(xv). The appeal of the assessee was rejected. The assessee, thereafter, sought a reference to the High Court and on the application of the assessee, the above question of law was referred for the opinion of the High Court. The High Court took the view that it was a capital expenditure and that the assessee is not entitled to the relief sought by him. It is against that order of the High Court the appeal came to be filled before the Supreme Court.
25. In order to decide the above proposition of law, the Supreme Court chose to adopt Lord Cave's test which consisted of two aspects. The point under the first aspect was whether the expenditure incurred by the assessee was not only once and for all but also was with a view to bring into existence an asset or advantage for the enduring benefit of the trade. The second point was whether there existed special circumstances leading to an opposite conclusion. On a consideration of both the points, the Supreme Court came to the conclusion that the expenditure incurred by the assessee was clearly a revenue expenditure.
26. In the earlier decision of the Supreme Court, which was also rendered by a Bench of three-judges, i.e., in Travancore-Cochin Chemicals Ltd. v. CIT [1977] 106 ITR 900, the Court considered only the first point mentioned above and reached a different conclusion. The second point was not brought to the notice of the Supreme Court in the said case and was not, therefore, considered by the court while applying Lord Cave's test. The observation made by the Supreme Court which is extracted above in L. H. Sugar Factory's case is self-explanatory.
27. In the light of the above facts, it is reasonable to hold that the second point which was couched in the parenthetical clause of Lord Cave's test passed sub silentio and that the decision in Travancore-Cochin Chemicals' case is a "precedent sub silentio". In the circumstances and for the aforesaid reasons, it is not only preferable but also reasonable to follow the decision in L. H. Sugar Factory and Oil Mills (P) Ltd. v. (CIT) instead of the decision in Travancore-Cochin Chemicals Ltd. v. CIT .
28. In a decision of the Supreme Court in Ambica Quarry Works v. State of Gujarat , it was observed :
"The ratio of any decision must be understood in the background of the facts of that case. It has been said long time ago that a case is only an authority for what it actually decides, and not what logically follows from it (see Lord Halsubury in Quinn v. Leathem [1901] AC 495)."
29. The ultimate object in following a precedent is no doubt to achieve certainty, uniformity and symmetry of form and substance.
30. Vide Bryce in "Studies in History and Jurisprudence", Volume II, page 629 :
"No doubt the sentiment is powerfully reinforced by what is often nothing but an intellectual passion for 'elegentia juris', for symmetry of form and substance."
31. I have carefully gone through the ruling of the Supreme Court in Somawanti v. State of Punjab [1963] 33 Comp Case 745 and I am satisfied that the ratio and the principle enunciated by the Constitution Bench does not negative the jurisprudence doctrine of "precedent sub silentio" which I have applied to the facts of the instant case. The said doctrine was neither canvassed nor considered by the Supreme Court in Somawanti's case [1963] 33 Comp Cas 745. The facts are different.
32. Attention is drawn to the view taken by the Madhya Pradesh High Court in Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd. v. CIT [1988] 172 ITR 131. The facts of that case are similar to the facts of the instant case. In the aforesaid case, placing reliance on the ruling of the Supreme Court in the case of L. H. Sugar Factory and Oil Mills (P.) Ltd. v. CIT , during the relevant assessment year, the assessee-company claimed deduction in regard to the amount paid by it to the State Government as a contribution of the assessee for metalling and black-topping of a kacha road from the factory of the assessee to the railway station. The assessee claimed deduction in respect of the contribution made by it to the State Government for the construction of tubewells in the proximity of the factory. The Income-tax Officer disallowed both these deductions on the ground that it was capital expenditure and the Tribunal confirmed the order of the Income-tax Officer. On a reference, the High Court of Madhya Pradesh held that where construction of a road had facilitated the business operations of the assessee and enabled the management and conduct of the assessee's business to be carried on more efficiently and profitably though the advantage secured for the business of the assessee was of a long duration, it was not an advantage in the capital field because no tangible or intangible asset was acquired by the assessee nor was there any addition to, or expansion of, the profit-making apparatus of the assessee. Following the aforesaid decision, it was held by the Madhya Pradesh High Court that the Tribunal was not justified in holding that the expenditure incurred by the assessee in connection with the construction of the road and tubewells was of a capital nature and held that the assessee was entitled to the deduction claimed as revenue expenditure. It may also be pointed out that the Madhya Pradesh High Court placed reliance on another decision of the Supreme Court in Empire Jute Co. Ltd. v. CIT for its conclusion. We are in respectful agreement with the view taken by the Madhya Pradesh High Court in the above-mentioned case.
33. In the circumstances and facts of the instant case, I am of the opinion that :
(a) the construction of the road which is not the property of the assessee is undoubtedly connected with and advantageous to the business activity of the assessee :
(b) the contribution of Rs. 3,61,236 made by the assessee is for the construction of the road under the scheme sponsored by the State Government;
(c) the cost of construction has been partly met by the assessee along with the Bangalore Development Authority and Bharat Electronics Ltd;
(d) though it conferred upon the assessee an enduring advantage for the benefit of its business, it did not secure to the assessee any tangible or intangible asset and further the enduring advantage gained by the assessee is chiefly to facilitate the assessee's business operations with greater efficiency and profitability without touching the fixed capital of the assessee;
(e) there is no addition to, or expansion of, the profit-making apparatus.
34. For the aforesaid reasons, I hold that the expenditure incurred by the assessee does not fall in the capital field and is purely a revenue expenditure, entitling the assessee to deduction under section 37 of the Act.
35. I, therefore, answer the question as follows :
36. On the facts and circumstances of the case, the Tribunal was not right in holding that the sum of Rs. 3,61,236 contributed towards the cost of the construction of the road is not an admissible deduction in computing the business income.
37. In the circumstances of the case, the parties shall bear their own costs of these references.
Rama Jois
38. I have had the benefit of going through the opinion of my learned brother, Balakrishna J. I. agree to the answers furnished therein to all the four questions of law referred for our opinion at the instance of the Revenue. I also agree that the question of law referred for our opinion at the instance of the assessee should be in the negative and in favour of the assessee. However, with respect, I am unable to agree that in respect of that question of law, the decision of the Supreme Court in Travancore-Cochin Chemicals Ltd. v. CIT , is a "precedent sub silentio" and that this court could decline to follow it by treating it as such. The scope of the principle "precedent sub silentio" as stated in Salmond on Jurisprudence. reads : "A decision passes sub silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the court or present to its mind. The court may consciously decide in favour of one party because of point A, which it considers and pronounces upon. It may be shown, however, that logically the court should not have decided in favour of the particular party unless it also decided point B in his favour; but point B was not argued or considered by the court, In such circumstances, although point B was logically involved in the facts and although the case had a specific outcome, the decision is not an authority on point B. Point B is said to pass sub silentio."
39. In all the three decisions of the Supreme Court, namely, Lakshmiji Sugar Mills Co. Put Ltd. v. CIT , Travancore-Cochin Chemicals Ltd. v. CIT [1977] 106 ITR 900 and L. H. Sugar Factory and Oil Mills Pvt. Ltd. v. CIT [1980] 125 ITR 293, the question involved was similar, namely, whether the expenditure incurred by the concerned assessee for formation of roads, which was useful for its business, but did not belong to it, was an admissible deduction in computing the business income, in that it was revenue expenditure and not capital expenditure. In the case of Lakshmiji Sugar Mills [1971] 82 ITR 376, decided by a two-judge Bench of the Supreme Court, the court held that it was revenue expenditure and consequently an admissible deduction in computing the business income. When a similar question came up in Travancore-Cochin Chemicals' case [1977] 106 ITR 900 before a three-judge Bench of the Supreme Court, a contrary view was taken and it was observed that the decision in Lakshmiji Sugar Mills' case must be confined to the facts of that case. This being a later and a larger Bench decision, it was followed by a Division Bench of this court in the case of D. P. Chirania and Co. v. CIT [1978] 112 ITR 12. Thereafter, in the case of L. H. Sugar Mills [1980] 125 ITR 293, a three-judge Bench of the Supreme Court explained the contrary view taken in Travancore-Cochin Chemicals' case and reiterated the view in Lakshmiji Sugar Mills' case , observing that the decision in Travancore-Cochin Chemicals' case should be confined to the facts of that case.
40. If the decision in Travancore-Cochin Chemicals' case had not been explained and departed from by the Supreme Court in L. H. Sugar Factory and Oil Mills'case , it appears to me that the decision in Travancore-Cochin Chemicals' case would have been a binding precedent and there would have been no alternative to this court except to answer the question of law referred for its opinion at the instance of the assessee, against the assessee. The earlier decision in Lakshmiji Sugar Mills' case to the contrary could not have been followed by this court, for, the course open to this court in the face of two conflicting decision of the Supreme Court has been settled by a five-judge Bench of this court in Govindanaik v. West Patent Press Co. Ltd., [FB]. In that decision, the Full Bench held that if there were to be a conflict between the two decisions of the Supreme Court, the one decided by a larger Bench is binding on this court, whether it was rendered earlier or later and that if both the decisions were rendered by the Benches consisting of equal number of judges, the later decision is binding. The answer furnished by the Full Bench of this court on the point, reads (p.95) :
"If two decisions of the Supreme Court on a question of law cannot be reconciled and one of them is by a larger Bench while the other is by a smaller Bench, the decision of the larger Bench, whether it is earlier or later in point of time, should be followed by High Courts and other courts. However, if both such Benches of the Supreme Court consist of equal number of Judges, the later of the two decisions should be followed by High Courts and other courts."
41. Further, a judgment of the Supreme Court in which a question of law has been decided, does not lose its binding authority as a precedent just because particular aspect of point was not urged before the Supreme Court. This is clearly laid down by the Supreme Court in the case of Somawanti v. State of Punjab (1963) 33 Comp Cas 745. The relevant portion of the same reads (at p. 758) :
"... The binding effect of decision does not depend upon whether a particular argument was considered therein or not, provided that the point with reference which an argument was subsequently advanced was actually decide."
42. Relying on the said ruling, a Division Bench of this court in the case of E. I. D. Parry (India) Ltd. v. State of Karnataka, ILR [1988] Kar 105, 118, held that it was impermissible for this court to disregard a binding decision of the Supreme Court on a question of law on the ground that some of the points bearing on the question decided by the Supreme Court were not argued before it. Moreover, even learned counsel for the assessee conceded that, but for the latest decision of the Supreme Court in L. H. Sugar Mills' case , not only the decision of the Supreme Court in Travancore-Cochin Chemicals' case , but also the decision in D. P. Chirania's case [1978] 112 ITR 12 (Kar), decided by a Division Bench of this court following Travancore-Cochin Chemical's case , both of which were against him, would have been binding on us.
43. For these reasons, I am unable to subscribe to the proposition that this court could decline to follow the decision of the Supreme Court in Travancore-Cochin Chemical's case , on the ground that the parenthetical clause of Lord Cave's test had not been adverted to in that decision, when the question of law to which the Supreme Court gave its answer in Travancore-Cochin Chemicals' case , and the question of law referred to in this case are similar. Moreover in view of article 141 of the Constitution, it is not open for the High Courts to decline to follows a decision of the Supreme Court on a question of law regarding its as a "precedent sub silentio".
44. However, I agree that as three-judge Bench of the Supreme Court in L. H. Sugar Mills' case , has explained its earlier decision in Travancore-Cochin Chemicals' case [1977] 106 ITR 900, which was also a decision rendered by a three-judge Bench, and has answered a question similar to the one rising for consideration in this case of the effect that the expenditure was a revenue expenditure, the said decision, being a later one, is binding on this court, as held by the Full Bench of this court in Govindanaik's case .
45. Subject to my disagreement on the question of this court applying the principle of "precedent sub silentio" to a decision of the the Supreme Court on a question of law and in this case to the decision in Travancore-Cochin Chemicals' case , I agree to the answer furnished by Balakrishna J. to the question referred for our opinion at the instance of the assessee.