LexASSAM BENGAL CEMENT CO. LTD. versus THE COMMISSIONER OF INCOME-TAX,WEST BENGAL
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1954 MaMsh Prasad v. Tlle$fatf!of Ult., I+a¢ah J•gtµ1nadhadas ]. 'l72 SUPREME COURT REPORTS [1955J Code. On the material we are not satisfied that there is any reason to reverse the findings of the courts belmf that the sanction is valid. All the contentions raised before us are untenable. This appeal must accordingly fail. It has been repre- sented to us that the appellant who has been refused bail by this court when leave to appeal was granted but has been granted bail subsequently has already served nearly six months of imprisonment in the intervening period, that he is a young man and has lost his job. In the circumstances we consider that it is not neces- sary to send him back to jail. The result, therefore, is that the appeal is dismissed subject to the modification of sentence of imprisonment. We reduce the sentence of imprisonment to the period already undergone. The sentence of fine stands. Appeal dismissed ASSAM BENGAL CEMENT CO. LTD. f), ,[ .. • THE COMMISSIONER OF INCOME-TAX, \_ " WEST BENGAL [MEHAR CHAND MAHAJAN C.J., s. R. DAS, BHAGWATI and VENKATARAMA AYYAR JJ.J Indian Income-tax Act (XI of I922), s, 10(2)(xv)-Capital expenditure-Revenue expenditure-Meaning of and distinction between the two. Section 10(2)(xv) of the Indian Income-tax Act, 1922, uses the term 'capital expenditure' for which no allowance is given to the assessee. The term 'capital expenditure' is used as contrasted with the term 'revenue expenditure' in respect of which the assessee is entitled to allowance under section 10(2) (xv) of the Act. As pointed out by the Full Bench of the Lahore High Court in Benarsidas fagannath, In re [(1946) 15 l.T.R. 185], it is not easy to define the term 'capital expenditure' in the abstract or to lay down any g~neral and satisfactory test to discriminate between a capital ancf_ a revenue expenditure. Though it is not easy to re- concile al\ the decided i;:ases on the subject, as each case had been decided on its peculiar fac;ts, so1ne broad principles could be >- __,I - I S.C.R. SUPREME COURT REPORTS 973 deduced from what the learned judges have laid down from time to time: ( 1) Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a sub- stantial replacement of equipment: vide Lord Sands in Commis- sioners of Inland Revenue v. Granite City Steamship Company ([ 1927] 13 T. C. I) and City of London Contract Corporation v. Styles ([1887] 2. T. C. 239). (2) Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into exi~tence an asset or an advantage for the endur- ing benefit of a trade: vide Viscount Cave, L.C., in Atherton v. British Insulated and Helsby Cables Ltd. ([1926] 10 T.C. 155). If what is got rid of by a lump sum payment is an annual business expense chargeable against 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 b_usiness has acquired a new asset, that is, machi- nery. The expressions 'enduring benefit' or 'of a permanent character" were introduced to make it clear that the asset or the right acquired must have enough durability to justify its being treated as a capital asset. ( 3) Whether for the purpose of the expenditure, any capi- tal was withdrawn, or, in other words, whether the object of incur- ring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. Fixed capitai is what the owner turns to profit by keeping it in his own possession. Circulating or floating capi- tal is what he makes profit of by parting with it or letting it change masters. Circulating capital is capital which is turned over and in the process of being turned over yields profit or loss. Fixed capital, on the other hand, is not involved directly in that process and remains unaffected by it. One has got to apply these criteria, one after the other from the busi
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