Madhya Pradesh High Court
R.J. Trivedi (Huf) vs Commissioner Of Income-Tax on 3 March, 1987
Equivalent citations: [1987]166ITR856(MP)
Author: N.D. Ojha
Bench: N.D. Ojha
JUDGMENT N.D. Ojha, C.J.
1. This judgment shall also govern the disposal of Misc. Civil Case No. 49 of 1982.
2. Aggrieved by the appellate order of the Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal"), the assessee as well as the Commissioner of Income-tax made an application to the Tribunal for referring certain questions of law to this court for its opinion. Misc. Civil Case No. 49 of 1982 is a reference made by the Tribunal at the instance of the Commissioner of Income-tax and Misc. Civil Case No. 50 of 1982 is a reference made by the Tribunal at the instance of the assessee. So, both these Misc. Civil Cases are being decided by a common order.
3. In Misc. Civil Case No. 49 of 1982, the following question of law has been referred to this court for its opinion :
"Whether, on the facts and in the circumstances of the case, expenditure incurred on huts, pipes and drain cuttings could be treated as revenue expenditure ?"
4. In Misc. Civil Case No. 50 of 1982, the following questions of law have been referred to this court for its opinion :
"1. Whether, on the facts and in the circumstances of the case, expenditure incurred on tram line Rs. 8,307, pumping set Rs. 9,911, and fault-stone cutting Rs. 12,597 could be sustained holding such expenses as capital in nature ?
2. Whether, on the facts and in the circumstances of the case, the expenditure incurred on huts, pipes and drain cuttings could be treated as revenue expenditure ?"
5. A perusal of question No. 2 in Misc. Civil Case No. 50 of 1982 indicates that it is precisely the same question which has been referred by the Tribunal at the instance of the Commissioner of Income-tax giving rise to Misc. Civil Case No. 49 of 1982. Indeed, since the finding of the Tribunal in regard to this question in its appellate order was in favour of the assessee, this question should not have been referred at the instance of the assessee.
6. The facts in a nutshell giving rise to these Misc. Civil Cases are that the assessee is a Hindu undivided family and is a partner in the firm known as M/s. J.A. Trivedi Brothers which owns manganese and coal mines. The said firm entered into an agreement with the assessee on July 15, 1961, to raise coal. The assessee had claimed expenditure on certain items as revenue expenditure. Some of these items were as follows :
(1) Expenditure incurred in setting up a tram line, (2) Expenditure incurred in purchasing a pump set, (3) Expenditure incurred in fault-stone cutting, (4) Expenditure incurred on huts, (5) Expenditure incurred on pipes, and (6) Expenditure incurred on drain cuttings.
7. The Tribunal in its appellate order held that the expenditure incurred by the assessee on the first three items was capital in nature ; whereas the expenditure incurred on the last three items was revenue expenditure. Having heard the learned counsel for the parties, we are of the opinion that before answering the questions referred to above, it is necessary to keep in mind the broad guidelines laid down in various decisions for determining the question as to whether a particular expenditure comes under the category of capital expenditure or revenue expenditure.
8. In CIT v. J.A. Trivedi Bros, [1979] 117 ITR 983 (Bom), it was held that the expenditure incurred by the assessee, whose business consisted of mining manganese and coal, on earth cutting operations amounted to revenue expenditure inasmuch as the operation of earth digging is an intrinsic part of the mining operation and it would, therefore, become an integral part of the profit-earning process. It was also pointed out that the cutting of the earth resorted to by the assessee had admittedly not resulted in bringing into being any permanent fixture or structure. In CIT v. Kirkend Coal Co. [1970] 77 ITR 530 (SC), it was held that the amount spent on stowing operations by the assessee which carried on the business of coal mining was allowable as business expenditure and it was so held on the ground that, as found by the Tribunal, stowing was an operation carried out in the process of extraction, of coal and unless it was carried out, extraction of coal was not possible irrespective of whether depillaring had been done or not. In Lakshmiji Sugar Mills Co. P. Ltd. v. CIT [1971] 82 ITR 376 (SC), it was held, relying on Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC), that if the expenditure is incurred for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business, it is properly attributable to capital and is of the nature of capital expenditure. If, on the other hand, it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is revenue expenditure. In Kalyanji Mavji and Co. v. CIT [1973] 87 ITR 228 (Cal), it was pointed out that where what is got rid of by a lump sum payment is an annual business expense chargeable against the revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. Thus, if labour saving machinery was acquired, the cost of such acquisition cannot be deducted out of the profits by claiming that it relieves the annual labour bill : the business has acquired a new asset, that is, machinery. Aggrieved by the judgment of the High Court in Kalyanji Mavji & Co. [1973] 87 ITR 228 (Cal), the Commissioner of Income-tax, West Bengal, preferred an appeal to the Supreme Court. The appeal was dismissed by the Supreme Court, see [1980] 122 ITR 49, and it was held that since, on the facts of that case, no new asset was brought into existence nor was an advantage for the enduring benefit of the business acquired by the expenditure, the expenditure was revenue in character. In Permali Wallace Limited v. CIT [1985] 151 ITR 43 (MP), the expenditure incurred on repairs of certain properties connected with the business was held to be revenue expenditure and not capital expenditure. It is on the basis of the principles contained in the aforesaid cases that we now proceed to answer the questions referred to us. In regard to the pumping set, the case of the assessee is that it has been acquired for the purpose of dewatering. The facility of tram line, according to the assessee, has been introduced for transporting coal from underground coal mine to the surface and thereafter to the rail head. The expenditure towards fault-stone cutting operations, according to the assessee, was in regard to removing the obstructions without removal of which it was not possible to carry on the mining operations. The expenditure incurred on purchase of pumping set and setting up tram line, in our opinion, was rightly held by the Tribunal to be capital expenditure. So far as these two items are concerned, the assessee obtained the machinery and there was an advantage of an enduring nature. It is not the case of the assessee that the expenditure incurred on these two items was not of enduring benefit and was necessary to be spent in a lump sum for the relevant period only for carrying out the mining operations. In this connection, the assessee brought to our notice a decision of the Supreme Court in Empire Jute Co. Ltd. v. CIT [1980) 124 ITR 1, where it was held by the Supreme Court that 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 principles 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 assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be ou revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. On this basis, it was urged that the test of obtaining an advantage of enduring benefit is not a universal test. In our opinion, the decision in Empire Jute Co. Ltd.'s case [1980] 124 ITR 1 (SC), is not of any assistance to the assessee so far as these two items are concerned. In the case of Empire Jute Co. Ltd. [1980] 124 ITR 1 (SC), the assessee had not purchased any machinery or other accessories. It was a case of purchase of loom hours from different jute manufacturing concerns which was found to be necessary for carrying on the business of the assessee.
9. As regards the expenditure incurred by the assessee in fault-stone cutting operations, we are, however, of the opinion that on the principle enumerated above, particularly in the case of Kirkend Coal Co. [1970] 77 ITR 530, where it was held by the Supreme Court that the amount spent by the assessee which carried on the business of coal mining for stowing operation was allowable as business expenditure inasmuch as stowing was an operation carried out in the process of extraction of coal and unless it was carried out, extraction of coal was not possible irrespective of whether depillaring had been done or not and the expenditure on this item has to be treated as revenue expenditure. Fault-stone cutting, as pointed out above, is an operation for removing obstruction in the course of mining. Unless the obstruction is removed, it would not be possible to carry on the mining operations. In regard to the expenditure incurred on huts, we may point out that as is apparent from the statement of facts attached to the grounds of appeal, it appears that the expenditure was incurred on this item towards repairs of hutments. These hutments were very old and due to heavy storm in the previous year relevant to the assessment year, the roofs of the two barracks were blown off by the storm and the hutments were to be repaired thoroughly. As would be seen, by carrying out these repairs, the assessee had not constructed or acquired any new building so that it could be said that it was a case of acquisition of new assets. For the same reasons as given by a Division Bench of this court in the case of Permali Wallace Ltd. [1985] 151 ITR 43, we are of the opinion that the expenditure incurred on repairs of hutments was rightly held to be revenue expenditure. Counsel for the Department in this connection brought to our notice certain decisions where it was held that construction of staff quarters or expenditure incurred for construction of metal roads over trenching grounds or adding a room to the existing building were such which could be treated only as capital expenditure and not as revenue expenditure. In our opinion, the expenditure incurred towards repairs of the old hutments as a consequence of their being blown off do not fall under any of these categories. Consequently we do not consider it necessary to refer to these cases in detail.
10. As regards the expenditure on pipes and drain cuttings, nothing has been brought to our notice on the basis of which it could be said that the view taken by the Tribunal that the expenditure incurred on these items was revenue expenditure may be said to be erroneous.
11. In view of the aforesaid discussion, our answer to the question referred to us in Misc. Civil Case No. 49 of 1982 is that on the facts and in the circumstances of the case, the expenditure incurred on huts, pipes and drain cuttings was rightly treated as revenue expenditure. Our answer to question No. 2 referred to us in Misc. Civil Case No. 50 of 1982 is that on the facts and in the circumstances of the case, the expenditure incurred on tram line--Rs. 8,307, and pumping set--Rs. 9,911, has to be treated as capital expenditure and has rightly been so treated by the Tribunal. As regards the expenditure of Rs. 12,597 incurred on fault-stone cutting, we are of the opinion that the said expenditure, on the facts and in the circumstances of the case, has to be treated as revenue expenditure. In the circumstances of the case, we make no order as to costs.
12. Misc. Civil Case No. 49 of 1982.--For the reasons given in the judgment delivered by us today in Misc. Civil Case No. 50 of 1982 (R.J. Trivedi (HUF) v. CIT (supra)), our answer to the question referred to us is that on the facts and in the circumstances of the case, the expenditure incurred on huts, pipes and drain cuttings was rightly treated as revenue expenditure. There shall, however, be no order as to costs.