COMMISSIONER OF INCOME-TAX, BOMBAY CITY-I, BOMBAY versus ASSOCIATED CEMENT COMPANIES LTD., BOMBAY

Citation: [1988] 3 S.C.R. 917 · Decided: 04-05-1988 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Dismissed

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Judgment (excerpt)

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COMMISSIONER OF INCOME-TAX, 
BOMBAY CITY-I,-BOMBAY 
v. 
ASSOCIATED CEMENT COMPANIES LTD., BOMBAY 
MAY 4, 1988 
[R.S. PATHAK, C.J. AND M.H. KANIA, J.] 
Indian Income-tax Act, 1922 -Whether expenditure incurred by 
assessee in accounting period relevant to the assessment period is liable 
to be allowed as deductible from assessee's profits under section 
A 
B 
10(2)(xv)-Of. 
C 
This was an appeal by certificate under Section 66(A)(ii) of the 
Indian Income-tax Act against the judgment of the Bombay High Court 
on a reference of the question whether expenditure incurred by the 
company in the accounting period relevant to, the assessment period was 
allowable as deduction in determining the profits of the company for the 
D 
assessment year. 
The assessee respondent had a factory at Shahabad. Under a tripar-
tite agreement between the government, ·tbe assessee and the Munici-
pality of Shahabad, the assessee had undertaken to supply water and 
electricity to Shahabad and to concrete the road from the factory to the 
railway station. Under clause 23, in consideration of these amenities to 
be provided by the assessee company, the Government undertook not to 
include any properties of the company within the limits of Shahabad 
Municipality, etc. for a period of fifteen years from the date of the 
agreement . 
According to the assessee, certain expenditure was incurred dur-
ing the year of account under the said agreement, on the laying of 
pipelines, installations and accessories of which the Shahabad Munici-
pality had become the owner \lnder the agreement, and this amount was 
claimed as deduction. The Income-tax Officer disallowed the amount. 
E 
F 
On appeal by the Company, the Appellate Assistant Commissioner 
G 
allowed the deduction. The Revenue preferred an appeal to the Income-
tax Appellate Tribunal, which passed an order, directing the Income-
tax Officer to scrutinize the expenditure, and allowed the deduction to 
the extent that it did not result in the company becoming the owner of 
any asset. The High Court in deciding the reference held that the expen-
diture in question was revenue expenditure and was liable to be allowed 
H 
917 
918 
SUPREME COURT REPORTS 
[1988] 3 S.C.R. 
A 
as deduction, and answered the question referred in the affirmative and 
in favour of the assessee. Revenue appealed to this Court against the 
de9ision of the High Court. 
B 
c 
D 
E 
F 
G 
H 
Dismissing the appeal, the Court, 
HELD: Water supply lines were laid as a result of the expendi-
ture incurred, but these water pipelines were not the assets of the asses-
see but of the Shahabad Municipality and it was not as if the expendi· 
lure resulted in bringing into existence any capital asset for the com-
pany. The only advantage derived by the assessee by incurring the 
expenditure was that it obtained an absolution or immunity, under 
normal conditions, from the levy of certain municipal rates, taxes and 
charges. [922E] 
As observed by this Court in Empire Jute Co. Ltd. v. Commissioner 
of Income-tax, [1980] 124 I.T.R. S.C. p. 1, there may be cases where 
the expenditure, even if incurred for obtaining an advantage of endur-
ing benefit, may nonetheless 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 is the nature of the advantage in 
a commerical sense and it is only where the advantage is in the capital 
field that the expenditure would be disallowable on application of this 
test. If the advantage consists merely in facilitating the assessee's trad-
ing operations or enabling the management and conduct of the asses· 
see's business to be carried on more effectively or more profitably while 
leaving the rIXed capital untouched, the expenditure would be on re-
venue account, even though the advantage may endure for an indefinite 
future. [922H; '>23A-C] 
In this case, the advantage secured by the assessee by making the 
expenditure was the securing of absolution or immunity from liability to 
pay municipal rates and taxes under normal conditions for a period of 
fifteen years. If these liabilities had to be paid, the payments would have 
been on revenue account and hence the advantage secured was in the 
field of revenue and not capital. As a result of the expenditure there was 
no addition to the capital assets of the assessee compan

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