LAKSHMIJI SUGAR MILLS CO. versus COMMISSIONER OF INCOME TAX, NEW DELHI

Citation: [1972] 1 S.C.R. 465 · Decided: 27-08-1971 · Supreme Court of India · Bench: K.S. HEGDE, A.N. GROVER · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
c 
D 
E 
F 
G 
H 
LAKSHMIJI SUGAR MILLS CO. 
v. 
COMMISSIONER OF INCOME TAX, NEW DELHI 
August 27, 1971 
[K. S. HEGDE AND A. N. GROVER, JJ.) 
Inco1ne Tax Act-Capital or Revenue Expenditure-Test 
4E>S 
The appellant-assessee is a private Ltd. Company carrying on the 
business of manufacture and sale of sugar. During the accountin~ period 
relating to the assessment year 1956-57, sums of Rs. 75,000/-
and 
Rs. 37,000/- were paid by the assessee to the Cane Development Council 
of the Sugarcane Department of U.P. (under U.P. Sugarcane Regulation 
and Sugar and. Purchase Act, 1953) by way of contribution for road 
development between various sugar cane producing centres and the sugar 
factories of the assessee. 
The roads were originally the property of the 
Government and remained so after improvements had been made., 
The 
improved roads facilitated the transportation of cane to the factories 
of 
the assessee and the expenditure was incurred for commercial expediency 
and for benefit of the day to day business of the assessee. 
The Revenu< 
Authorities, the Appellate Tribunal and the High Court found that these 
contributions constituted capital expenditure and could not be aUowed as 
an admissible deduction in computing the total 
income of the 
a:ssessee. 
Allowing the appeal, 
HELD : In the facts and circumstances of the case the expenditure 
was incurred by the assessee for reasons of commercial expediency apart 
from statutory compulsion. The development of the roads was necessarily 
meant for facilitating the carrying on of the assessee's 
business 
with 
a 
·view to produce profits. 
In the absence of any finding by the 
Tribunal 
that the roads were to be altogether newly n1ade and that 
the 
assessc~ 
would get an enduring benefit, the expenditure was allowable as an admb~ 
sible deduction . .[ 468 HJ 
Assam Bengal Cement Co. Ltd. v. C.l.T. West Bengal, 21 I.T.R. 
34, 45; C.l.T. West Bengal v. Hindusthan Motors Ltd., 68 I.T.R. 301 
and C.l.T. west Bengal v. Roya/. Calcutta Turf Club, 41 I.T.R. 414. 
referred to., 
, 
C1v1L APPELLATE JURISDICTION : Civil Appeal No. 1928 of 
1968. 
Appeal by special leave from the judgment and order dated 
February 17, 1967 of the Delhi High Court in Income-tax Re-
ference No. JS of 1963. 
D. K. Bajaj and K. B. Rohatgi, for the appellant. 
S. T. Desai, P. L. Juneja, R. N. Sachthey and B. D. Sharma. 
for the respondent. 
The Judgment of the Court was delivered by 
GroYer. J. 
This is an appeal by special leave from a 
judgment of the Delhi High Court in an Income tax Reference. 
The assessee, which is the appellant, is a private limited com-
pany carrying on the business of manufacture and sale of sugar. 
It has two sugar mills one at Maholi (Sitapur) and the other at 
Raja-ka-Sahaspur (Moradabad). 
The head office of the asses-
see is at New Delhi. 
During the accounting period relating to 
466 
SUPREME COURT REPORTS 
[1972) 1 S.C.R. 
the assessment year 
1956-57 
sums of 
Rs. 75,000/-
and 
Rs. 3 7 ,500/- were paid by the assessee to the Cane Development 
Council of the Sugarcane Department of the Government of Uttar 
Pradesh by way of contribution for road development between 
the various sugarcane producing centres and the sugar factories 
of the assessee. 
The revenue authorities found that these con-
tributions were intended to be applied for the construction and 
development of roads between the sugarcane producing centres 
and the sugar mills and held that these amounts constituted capi-
tal expenditure and could not be allowed as an admissible deduc-
tion while co;pputing the total income of the 
assessee. 
The 
Appellate Tribunal upheld the order of the departmental autho-
rities. On an application being moved the Tribunal referred two 
questions of law to the High Court. We are concerned only, in 
the present case, with the second question which is as follows 
"Whether the sums of Rs. 75,000 and Rs. 37,500 
paid to the Road Development Fund set up by the Gov-
ernment of U.P. were rightly disallowed as items of capi-
tal expenditure ?" 
The High Court held that the aforesaid expenditure could 
not be regarded as revenue expenditure and the answerr was 
returned against the assessee. 
According to the 
assessee certain 
facts are 
fully esta-
blished. 
These are ( 1) the expenditure incurred was for the 
development of roads and the assessee was under an obligation 
to make the aforesaid contributions under the provisions of the 
U. P. Sugarcane Regulation of Supply

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