1. The assessee before us is the Gopal Mills Co. Ltd., Ahmedabad, who have owned a textile mill for many years and manufacture textiles therein. The land on which the mills are situated is leasehold and about twenty-five years of the lease had to run during the relevant accounting year. The mills used to discharge waste water which accumulated in a pit in the mills' own compound and sometimes even overflowed the pit. The stagnation of the water and then its overflow caused nuisance and danger to human life in the vicinity, and the Sub-Divisional First Class Magistrate of Broach City, therefore, issued an order under section 144 of the Criminal Procedure Code, not to collect or allow to collect waste water or any other water discharged from the mills in order to allow the said water to flow off as overflow from the said pit. Thereafter, some settlement was arrived at between the municipality and the assessee company with a view to make some suitable arrangement for the discharge of the water from the mills and as a result of the settlement, the company filled up the pit during the accounting year and incurred an expense of Rs. 36,154 for filling up the pit. The question that arises for our determination on this reference is whether is an allowable deduction under section 10(2)(xv) of the Income-tax Act.
2. Now, apart from any authority and looking at the transaction by itself there can be little doubt that this cannot be a revenue expenditure. In the first instance, if the it had been filled up when the mills were put up there can be little doubt that the expenses incurred in filling up would have been a capita expenditure and not a revenue expenditure; and therefore it as a result of imprudence on the part of the owners of the mills, the pit was allowed to remain unfilled up to a point when it became a nuisance in the locality, filling it up at that stage cannot possibly alter the nature of expense incurred in filling up the pit from a capital expenditure to a revenue expenditure. Secondly, the pit in its existing state before it was filled up was not an asset at all, but it was a liability and a nuisance to the adjoining locality. It was a liability to the assessee. After it was filled up, obviously it became an asset to the assessee, because on the leveled up ground they can carry on any of the operation in connection with the running of the mills. To that extent a new asset of an enduring character was brought into existence. That the unexpired period of the lease is only 25 years does not make the asset any the less enduring.
3. Mr. Mehta for the assessee has drawn our attention to a decision of a Division Bench of this court in Income-tax Reference No. 17 of 1950 delivered on the 10th of October, 1950. There the amount claimed as a revenue reduction was costs of the repairs to the flooring in two departments of a mill. It had been found as a fact that the floor used to be made up every year, but in the accounting year it was made up by a new process which rendered the flooring more durable although the expenditure involved was much less than in the past. We held that all that the assessee was doing was to maintain and preserve an asset which is already possessed. Obviously the ratio of that decision is completely inapplicable to the present case before us. The pit was not an asset nor was there an attempt to maintain and preserve the pit. What was done was to convert what was a pit - and therefore was not an asset - into a filled up ground which was capable of being used for the legitimate purposes of the mills.
4. Mr. Mehta also relies on a judgment of the Punjab High Court in Commissioner of Income-tax, Delhi v. S.B. Ranjit Singh. The assessee in that case leased his hotel complete with furnishings and fittings for twenty years at an annual rent of Rs. 50,000 and he incurred an expenditure in re-surfacing with concrete the approach roads. This expenditure was allowed as a revenue expenditure. Now, it was found as a fact in that case that the roads existed but that they had fallen into a bad state of repairs and they had to be repaired and the re-surfacing was done with a view to put the roads in a condition in which they should always have been. In other words, what was sought to be set right was the ravages of time on the roads. The roads should have been maintained from year to year but not having been so maintained, the cost incurred was more than what would have been incurred if they and been regularly maintained. That again is not the position in the case before us. There is nothing on the facts of this case to show that this pit was to be filled up every year and it is because the pit was not filled up that it had grown deeper and deeper, and, therefore had to be filled up during the accounting year. This appears to us to be a clear case where no asset was sought to be maintained or preserved by the expenses incurred; but the expenses were incurred in rendering what was a pit - and therefore a liability and a nuisance to the neighbourhood - into an asset which is useful to the assessee.
5. In our opinion, the Tribunal was right in the view they took and our answer to the question referred to us will be in the negative.
6. Assessee to pay costs.
7. Question answered in the negative.