Bombay High Court
Zenith Steel Pipes Ltd. (No. 1) vs Commissioner Of Income-Tax on 6 December, 1988
Equivalent citations: [1990]185ITR126(BOM)
Author: S.P. Bharucha
Bench: S.P. Bharucha
JUDGMENT T.D. Sugla, J.
1. The questions of law referred to us at the instance of the assessee are :
"(1) Whether, on the facts and circumstances of the case, the expenditure of Rs. 20,246 incurred by the assessee on barbed wire fencing is an allowable/revenue expenditure of the assessee for the accounting period relevant to the assessment year 1972-73 ?
(2) If the answer to question No. 1 is in the negative, whether the assessee is entitled to any depreciation on the cost incurred by the assessee in raising the said barbed wire fencing ?"
2. The assessee is a company. The proceedings relate to its assessment for the assessment year 1972-73. The assessee had claimed revenue expenditure which included an expenditure of Rs. 20,246. These expenses were incurred for putting up a barbed wire fencing at the assesee's factory premises at Khopoli. The Income-tax Officer disallowed the claim observing that it was of capital nature. The Appellate Assistant Commissioner accepted the assessee's claim and held that the barbed wire fencing was done with a view to stop (i) entry of animals inside the factory premises and damaging lawns, gardens, etc.,; (ii) easy entry of outsiders and to avoid theft of company's goods : (iii) entry of the employees from any point and to regulate a normal passage for coming in, and going out from, the factory; and (iv) to avoid any dispute with persons having lands in the neighbouring areas. He also accepted the assessee's claim that the life of wire-fencing was hardly one to two years and that the expenditure thereon was, therefore, not of enduring nature. Accordingly, he held that the expenditure was of revenue nature and that the Income-tax Officer was not justified in disallowing the expenses. The matter was carried to the Tribunal by the Department. Having regard to the departmental representative's submission that the expenditure on the wire-fencing was incurred for the first time and that the advantage of fencing was to last for a number of years, the Tribunal held that the expenditure incurred by the assessee was to secure an advantage of enduring nature. The Tribbunal further held that since wire fencing was not an asset in the strict sense of the word though it was certainly an advantage or benefit, which could not be allowed, only replacement can be allowed as and when the fencing was completely worn out.
3. Shri Toprani, learned counsel for the assessee, relied on the Supreme Court decision in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 and stated that it was not every advantage of enduring which brought an expenditure within the meaning of capital expenditure. The material thing to consider was the nature of the advantage in a commercial sense and it was only where the advantage was in the capital field that the expenditure would be disallowable. If, on the other hand, the advantage consisted merely of facilitating the assesse's trading operations or enabled the management to conduct its business in a more efficient and profitable manner while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage might endure for an indefinite future. It was reiterated that the wire fencing was done in order to preserve the assets of the company and facilitate the carrying on of its business. The wire fencing certainly did not add to the value of the capital assets. Shri Toprani also placed reliance on the Delhi High Court's decision in the case of CIT v. New Garage Ltd., [1981] 129 ITR 122.
4. In this case, the landlord of the premises has filed a suit for eviction of the assessee-tenant. Ultimately, however, the suit came to be compromised and the assessee agreed to pay a sum of Rs. 10,000 to the landlord. The question arose whether the payment of Rs. 10,000 was or was not revenue expenditure. It was held by the court that the amount was paid for the continuance of the tenancy right already existing and the assessee had not acquired any asset or enduring advantage.
5. Dr. Balasubramaniam, on the other hand, relied on this court's decisions in CIT v. Caltex Oil Refining (I.) Ltd. [1976] 102 ITR 260, CIT v. Colour-Chem Ltd. [1977] 106 ITR 323 and CIT v. Borosil Glass works Ltd. [1986] 161 ITR 286, in suppors of the Tribunal's order.
6. We have gone through the judgments relied upon by Dr. Balasubramaniam. In our view, these judgments are not applicable to the facts of the case before us. In CIT v. Caltex Oil Refining (I.) Ltd. [1976] 102 ITR 260 (Bom), the question was not whether a expenditure was of capital or revenue nature. The pertinent question was whether the amount spent on wall/fencing in that particular case formed part of the building. The fencing in that case was a condition for the assessee's carrying on its business, and it was for that reason that this court held that the fencing was a part of the building or plant of the assessee. In CIT v. Colour-Chem Ltd. [1977] 106 ITR 323 (Bom), the question was whether the roads or roadways laid out by the assessee-company for the purpose of linking several factory buildings within the factory premises should be regarded as building within the meaning of section 10(2) (vi) of the Indian Income-tax Act, 1922. The facts in CIT v. Borosil Glass Works Ltd. [1986] 161 ITR 286 (Bom) are also similar to those in Colour-Chem Ltd.'s case [1977] 106 ITR 323 (Bom).
7. The position, thus, is that the principles relating to the question whether an expenditure is of revenue or capital nature are laid down by the Supreme Court in Empire Jute Co. Ltd.'s case . We have to see whether and to what extent these principles are applicable in this case one way or the other. The assessee admittedly incurred an expenditure of Rs. 20,246 on wire fencing of its factory boundaries. The wire fencing cannot certainly last for many years. As found by the Appellate Assistant Commissioner, the expenditure facilitated smooth and efficient running of its business. Having regard to the nature of the expenditure and the purpose for which it was incurred, we hold that the expenditure was of revenue nature.
8. Accordingly, the first question referred to us is answered in the affirmative and in favour of the assessee. In view of our answer to the first question, the second question does not survive and is returned unanswered.
9. No order as to costs.