LexTRAVANCORE COCHIN CHEMICALS LIMITED versus COMMISSIONER OF INCOME-TAX, KERALA
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J
TRA VANCORE COCHIN CHEMICALS LIMITED
v.
COMMISSIONER OF INCOME-TAX, KERALA
January 21, 1977
(H. R. KHANNA, R. S. SARKARIA AND A. C. duPTA, JJ.]
715
The Income-Tax Act, 1961, s. 37(1), whether construction of road a per-
missible deduction under.
The appellant assessee is a public limited company who spent Rs. 26,100/-
for the construction of a .new road for improving transport facilities in the area
where its factory is located and sought to deduct this >1mount from its
total
income claiming. this as revenue expenditure for the year. The claim was dis-
allowed by the Income-tax Officer and the Appellate Assistant Commissioner.
The Appellate Tribunal held that the amount could be deducted as revenue ex-
penditure but at the instance of the respondent referred the matter to the High
Court under s. 256(1) of the Income Tax Act, 1961, where it was decided against
the appellant.
Dismissing the arpeal, the Court,
HELD : The lme of demarcation between capital expenditure and revenue
expenditure has been found to be very thin. According to the test suggested in
Atherton's case by Viscount Cave, L. C. by having the new road constructed for
the improvement of transport facilities, the assessee acquired an enduring advan-
tage for its business.
The expenditure incurred was, therefore. of a
capital
nature. 1716 F. 717 F-H & 718 DJ
Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 Tax Cases
155: Ass<Vi1 Bengal Cement Co. Ltd. v. Commissioner of Income Tax, West
Bengal [1955] 27 ITR 34 and Sitalpur Sugar Works Ltd. v.
Commisisoner of
lncome Ta;i. Bilzar and Orissa [19631 49 ITR 160, applied
Commissioner of Income-tax v. Hindustan Motors Ltd. [1968] 68· ITR 301
and Lakshmiji Sugar Mills Co. (P) Ltd. v. Commissioner of Income-tax, New
Delhi [1971] 82 ITR 376, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 265 of 1972.
From the Judgment and Order dated the 24th August, 1971 of the
Kerala High Court in I.T.R.No. 25 of 1969.
G. B. Pai, K. J. John for M/s Dadabhanji & Co., for the Appellant.
B. B. Ahuja and R. N. Sachthey for Respondent.
A
B:
D·
E
F
The Judgment of the Court was delivered by
G,
GUPTA, J.-The question for decision in this case is whether the
money contributed by the assessee, public limited company, for the
construction of a new road in the area where its factory is located to
improve transport facilities is capital expenditure or revenue expendi·
tura.
The assessment
year in question is 1964-65, the relevant
iccounting period being the financial year ended March 31,. 196~.
R
The assessee company is engaged in the m.anufactu~e of chemicals; it
had been receiving and despatching ma:tenals requrred for ~nd pro-
duced in its factory through lorries.
The assessee along with three_
A
!B
D
E
F
G
B
716
SUPREME COURT REPORTS
(1977] 2 s.c.R.
other public unoertakmg "!li.>fU<tched the Government of Kerala for
laymg i1 ut:w w<tu Uvill .l>.ruiil!l<toocn
LO Uuyvg<tumnua1; trus
area
wnt:rc mt: <tbSt:.>bet: s I<i1.:•v1y ll> buUa•e was not at tne macerial tune
servea oy pucca roaus.
1t was agreed that the liovernment of Kerala
would bear U1e cost of the acqu1Muon of the land and 25 per cent of
the cost of construction.
The total cost to be shared
by the four
companies was Rs. 1,04,550/- and the assessee's share came to Rs.
26,100/-.
The assessee company sought to deduct this amount from
its total income clauning this as revenue expenditure for the year in
question.
,The ln~om~-tax Officer disallowed the claim holding that
the . assessee s con~1bution was capital expenditure.
The Appellate
Assistant Commiss10ner took the same view.
The Appellate Tribu-
nal, mainly relying on the decision of the Calcutta High Court
in
Commissioner of Incom_e-tax v. Hindustan Motors Limited,(') hel?
that the a~sessee was entitled to deduct the amount as revenue expendi-
ture.
At the instance of the Commissioner of Income-tax, Kerala,
Ernakulam, the Tribunal referred the following question to the High
Court of Kerala under section 256(1) of the Income-Tax Act, 1961 :
"Whether, on the facts and in the circumstances of the case,
the Appellate Tribunal was legally justified in allowing tll1:
expenditure of Rs. 26,100/- being the respondent's contri-
bution to government for constructing a road as a permis-
sible deduction under sectioii 3 7 ( 1) of the
Income-Tax
Act, 1961."
The High Court held tllat tlle assessee in this case obExcerpt shown. Read the full judgment & AI analysis in Lexace.