ARVIND MILLS LTD. versus COMMISSIONER OF INCOME TAX, GUJARAT

Citation: [1992] 3 S.C.R. 557 · Decided: 21-07-1992 · Supreme Court of India · Bench: S. MOHAN · Disposal: Dismissed

Judgment (excerpt)

-r 
ARVIND MILLS LTD. 
A 
v. 
COMMISSIONER OF INCOME TAX, GUJARAT 
JULY 21, 1992 
[S. MOHAN AND G.N. RAY, JJ.] 
B 
~ 
Income Tax Act, 1961 : Section 37. 
Business expenditure-Capital or Revenue expenditure-Test to deter-
mine-Expenditure must have direct nexus with day to day running of busi- c 
.... 
ness-Question of voluntary or involuntary payment is not relevant 
-Contribution of bemennent charges made by the assessee towards the cost 
of Town Planning Scheme under the Bombay Town Planning Act, 1954-Ex-
....), 
penditure held capital in nature-Not deductible from the income of the 
assessee. 
D 
Under the Bombay Town Planning Scheme the lands of different 
owners within the Scheme are treated in a common pool and various 
improvements are effected for the better enjoyment of the lands in ques-
tion. Since by such improvements the value of the land increases the 
- -( 
person getting advantage of enhancement of value of land in question is E 
I 
required to pay betterment fee under the Bombay Town Planning Act, 1954. 
The appellant-Company made payments towards betterment charges 
-
in ten instalments and claimed deduction of the said payment on the 
ground that it was a revenue expenditure. The Income Tax Officer disal-
lowed the claim for deduction. On appeal, the Appellate Assistant Com-
F 
;Jo., 
missioner allowed deduction of the amount of only one instalment paid by 
the assessee for the year of assessment. The Company prefe~d an appeal 
before the Income Tax Tribunal which held that the betterment charge was 
not revenue expenditure and therefore no deduction was allowable. On a 
reference to the High Court of Gujarat on the question whether the G 
Tribunal was justified in disallowing the. betterment charges, the High 
_._, 
Court dedded against the Assessee-Company. 
In appeal to this Court it was contended on behalf of the appellant-
Company that because of the improvement effected under the Town Plan-
ning Scheme the running of the business of the Assessee-Company got H 
557 
558 
SUPREME COURT REPORTS 
[1992] 3 S.C.R. 
A improved and thus the betterment fee required to be paid under the 
scheme had a direct nexus with the running of the business of the assessee. 
Hence, such betterment charge particularly in the context that such pay-
ment was involuntary and was in the nature of compulsory exaction from 
the assessee should be held to be a revenue eA-penditure made for better 
B 
running of the business. 
On behalf of the revenue it was contended that there must be a direct 
' y 
. connection with the business activities and the expenditure made and a 
)--· 
remote connection with the business activities is not relevant for the 
purpos~ of treating the expenditure as revenue expenditure. 
c 
Dismissing the appeal, this Court 
HELD 1. In deciding whether an expenditure is a capital expenditure 
-
or a revenue expenditure the question of voluntary and/or involuntary 
,l_ 
payment becomes immaterial. It is the nature of expendure that deter-
D mines the issue. The capital expenditure incurred in connection with the 
business activities ultimately results in efficiently carrying on the business 
and by that process gives aid in running of the day-to-day business more 
efficiently but simply on that score, the capital expenditure does not 
become a revenue expenditure. [566A, 565-HJ 
E 
F 
2. Under the Bombay Town Planning Scheme, the lands of different 
owners including the land of the assessee were treated as if included in a 
common pool and various improvements have been effected for the better 
enjoyment of the lands under the scheme. For such improvement by way 
of laying down roads, making provision for drainage etc. under the scheme, 
the owner got the advantage of betterment of the land in question and there 
is no manner of doubt that the valuation of the land had increased because 
of the improv~ments effected on the land. Simply because by such improve.: 
ment it has also resulted in providing better facilities for carrying out the 
business of t~e assessee, the betterment charge required to be paid by the 
G assessee, does not bt;eome the revenue expenditure. Such payment has no 
direct nexus with the day-to-day-running of the business. [565E-G] 
3. The High Court rightly held that the betterment charge on account 
of increase in the valuation of the land of the assessee should not be held 
as a revenue expenditure although general improvement of the area may 
H have an impact on better runnin

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