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D.P. Chirania and Company Vs. Commissioner of Income-tax, Mysore - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Referred Case No. 75 of 1974
Judge
Reported in[1978]112ITR12(KAR); [1978]112ITR12(Karn); 1977(2)KarLJ247
ActsIncome Tax Act, 1961 - Sections 37(1)
AppellantD.P. Chirania and Company
RespondentCommissioner of Income-tax, Mysore
Appellant AdvocateG. Sarangan, Adv.
Respondent AdvocateS.R. Rajasekhara Murthy, Adv.
Excerpt:
- mines and minerals (regulation and development) act (67 of 1957) section 9-a & mineral concession rules, 1960, rules 31 & 27: [ram mohan reddy, j] power to tax - levy of lease rent and supervision charges on leased forest land release of forest land for mining purposes in favour of petitioners subject to payment of lease rent and supervision charges - impost of lease rent and supervision charges not established to be by way of tax under article 265 in exercise of executive functions under article 162 of constitution. it is illegal being without authority of law. the preamble in the orders of the state government, impugned, discloses reference to particulars regarding recommendations made by the state to central government for release of forest land for mining purposes in favour of.....govinda bhat, c.j. 1. this reference made by the income-tax appellate tribunal, bangalore bench, bangalore, at the instance of the assessee under section 256(1) of the income-tax act, 1961, relates to the assessment year 1966-67, the relevant previous year being the year ending march 31,1966. 2. the assessee is a firm dealing in iron ore. in the return filed for the assessment year 1966-67, the assessee has shown its total income as rs. 65,613. this figure was based on the profit and losss account of the firm. later, it filed a revised return showing a total income of rs. 20,436 only. this reduction of income of from rs. 65,613 to rs. 20,436 was primarily due to the fact that in the revised return the assessee had claimed as revenue expenditure a sum of rs. 55,146 being the cost of roads.....
Judgment:

Govinda Bhat, C.J.

1. This reference made by the Income-tax Appellate Tribunal, Bangalore Bench, Bangalore, at the instance of the assessee under section 256(1) of the Income-tax Act, 1961, relates to the assessment year 1966-67, the relevant previous year being the year ending March 31,1966.

2. The assessee is a firm dealing in iron ore. In the return filed for the assessment year 1966-67, the assessee has shown its total income as Rs. 65,613. This figure was based on the profit and losss account of the firm. Later, it filed a revised return showing a total income of Rs. 20,436 only. This reduction of income of from Rs. 65,613 to Rs. 20,436 was primarily due to the fact that in the revised return the assessee had claimed as revenue expenditure a sum of Rs. 55,146 being the cost of roads laid by the assessee for transportation of ore, notwithstanding of ore, notwithstanding the fact that in its profit and loss statement, the said sum had been shown under the head 'Capital Asset' in the balance-sheet as on March 31, 1966, and depreciation amounting to Rs. 11,029 also had been debited.

3. It was claimed before the Income-tax Officer that there were existing Kutcha roads which had to be repaired and kept under constant repair in order to render them all-weather roads capable of taking the load of heavy lorries iron ore. It was also claimed that out of the afore-said sum of Rs. 55,145.86, about Rs. 10,000 related to the construction of new branch roads to the actual working site and the balance related to road repairs. On going through the accounts, the Income-tax Officer found that the new roads were laid by engaging contractors and the cost of construction of such roads was paid to various contractors. He found that there were no roads in the earlier years and the assessee had made new roads during the relevant accounting year. Therefore, he rejected the assessee's claim holding that the said sum of Rs. 55,146 was capital expenditure for construction of new roads.

4. Aggrieved by the said order of the Income-tax Officer, the assessee appealed to the Appellate Assistant Commissioner, before whom the case that such roads had existed prior to the year of account was not pressed; it was conceded that although there were no roads existing before, the roads constructed by the assessee were in the nature of approach roads to the mine heads not owned by the assessee. It was argued that according to the agreement with the mine-owner - Dr. (Mrs.) Savithri Bai the assessee had agreed to purchase 60,000 tonnes of iron ore per year at pit's mouth; that the roads laid were purely accessory to mining operations and the assessee had no interest whatsoever in the roads and it did not derive any enduring benefit from the same.

5. The Appellate Assistant Commissioner rejected all the contentions of the assessee. He noted that the assessee was neither a mine-owner nor a raising contractor, that the raising contractor was a partner of the assesses-firm and the raising contractor could not undertake the raising of ore without approach roads and, therefore, he came to the conclusion that the construction of the roads was not wholly for the assessee's own business, since it was partly for the business of the raising contractor. The Appellate Assistant Commissioner also observed that there was no proof that the entire stretch of roads was only in the nature of approach roads. Accordingly, he dismissed the assessee's appeal.

6. The assessee then appealed to the Income-tax Appellate Tribunal. It was urged by the assessee before the Tribunal that the entire stretch of roads consisted of approach roads. A sketch was produced before the Tribunal in support of that claim. The Tribunal being of the opinion that the sketch was unreliable, rejected the assessee's claim that the roads were approach roads in the absence of reliable evidence.

7. The second ground urged before the Tribunal was that, under the agreement, the assessee had to lift annually 60,000 tonnes of ore from the mines and that such large quantity of ore could not be raised without approach roads. The Tribunal did not accept this claim made on behalf of the assessee because the raising contractor was different and the assessee was required merely the raising contractor was different and the assessee was required merely to take delivery of the iron ore at the pit's mouth.

8. The third ground urged was that the agreement between the assessee and the mine-owner was only for a period of 5 years and it was not a permanent lease; and that in view of the short duration of the lease, it could not be said that the assessee derived any enduring benefit. This contention was rejected by the Tribunal.

9. It was next urged before the Tribunal that as the roads were laid on lands belonging to others, no capital asset was brought into existence either and, therefore, the expenditure cannot be treated in law as capital outlay. This contention was rejected by the Tribunal relying on the judgment of the High Court of Allahabad in Lakshmi Sugar & Oil Mills v. Commissioner of Income-tax : [1972]84ITR439(All) .

10. The Tribunal agreed with the Appellate Assistant Commissioner that the expenditure could not be said to be wholly for the assessee's business since it was as much to facilitate the business of the raising contractor as the assessee's own. The Tribunal accordingly rejected the claim made by the assessee for deduction of the cost of construction of roads as revenue expenditure.

11. On the above facts, the Tribunal stated a case and referred the following questions of law for the opinion of this court :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure of Rs. 55,146 incurred by the assessee on construction of roads could not be said to have been incurred wholly for the assessee's business

2. If the answer to the first question is in the negative, whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 55,146 was capital expenditure ?'

12. It was urged by Sri Sarangan, learned counsel for the assessee, that the expenditure incurred was wholly and exclusively for purpose of the business of the assessee and that the Tribunal was in error in holding that the 'expenditure cannot be said to be wholly for the assessee's business, since it was as much to facilitate the business of the raising contractor as the assessee's own.

13. It was not possible for us to understand how the Tribunal could legally infer from the material on record that the expenditure cannot be said to be wholly for the assessee's business and that it was as much to facilitate the business of the rasing contractor as the assessee's own. The raising contractor had entered into an agreement with the assessee for sale of iron ore. The assessee was to take delivery of the ore at pit's mouth. The roads constructed by the assessee were for the purpose of connecting the pit's month to the public road. There was no material whatever before the Tribunal to hold that the object of constructing roads was to serve the business of not only the assessee, but also of others. The ore which was the subject-matter of contract between the assessee and Dr. (Mrs.) Savithri Bai was iron ore. It is common knowledge that iron ore. It is common knowledge that iron ore is extracted not by deep mining as in the case of gold mining; iron ore is extracted by surface mining over large areas of land. Ore is heaped by the raising contractor at convenient localities and it is the business of the purchaser of the ores to load the ore from such place and transport the same. For transportation of the ore from the pit's mouth to the public roads, requisite roads have to be formed connecting the places of extraction of iron ore to the the public roads. Such roads are what are called 'access roads' constructed primarily and principally for the purpose of providing access to the area of extraction of iron ore.

14. The question is whether a taxpayer is entitled to deduction of the cost of construction of such 'access roads' in the mining area. If the expenditure is in the nature of revenue expenditure, the assessee is entitled to its deduction under section 37 of the Income-tax Act; but an item of expenditure though wholly and exclusively laid out for the purpose of the business, would be inadmissible if it is of a capital nature. Capital expenditure has not been and indeed, in view of the great diversity of the contexts in which the question arises, does not admit of being exhaustively defined.

15. Several tests have been suggested to determine whether a particular outgoing represents an outlay of capital or of revenue expenditure. While the tests are generally efficacious, there are, however, twilight areas where the borderline between capital and revenue expenditure is very thin if not altogether tending to disappear and in borderline a conclusion one way or the other may, with equal propriety, be reached. The concept of what is capital and what is revenue is, in the nature of things, something which cannot be static and fixed, but must be dynamic to accord with changing patterns of economic life of the community.

16. It is, therefore, difficult to lay down any general rule so sufficiently accurate and exhaustive as to cover even a great number of conceivable cases. The judicial endeavour, while abstaining from doing what the legislature has steered clear of doing in the matter of formulating precise rules in the matter has been to lay down, recognising the wisdom of attempting no more, certain broad tests which will guide the decision of a particular case on its own facts. The distinguish between the capital and revenue in law is 'frequently one of difficulty, just as it is difficult to indicate exactly where darkness ends and dawn begins, or when black and white lose their distinctive features and become neutral'. (See Walter Strachan, Capital and Income under the Income-tax Acts, 29 Law Quarterly Review, page 163.)

17. The earliest of such formulations was by Bowen L.J. in City of London Contract Corporation v. Styles [1887] 2 TC 239 where it was observed that expenditure in the 'acquisition of the concern' would be capital, While expenditure in 'carrying on the concern' revenue.

18. Then followed the suggestion of Lord Dunedin in Vallambrosa Rubber Company v. Farmer [1910] 5 TC 529 as 'not a bad criterion' though not determinative one that if the expenditure is 'going to be spent once and for all' it is capital and if a thing is 'going to recur every year' it is revenue.

19. What was suggested by Rowlatt J. in Ounsworth v. Vickers Ltd. [1915] 3 KB 267 was essentially the same.

20. The most notable and frequently cited declaration on the subject, however, is that made in the following words by Viscount Cave L.C. in British Insulated and Helsby Cables Ltd. v. Atherton [1926] AC 205 (HL) :

'But when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of trade, I think that is very good reason (in the absence of special circumstances leading to an opposite conlusion) for treating such an expenditure as property attributable not to revenue but to capital.'

21. This test, however, when examined only affords a general indication of the approach of any particular case; the words in brackets show that each case is to be considered in relation to all relevant facts and that the words 'once and for all' are also not decisive. In Sun Newspapers Ltd. and Associated Newspapers Ltd. v. Federal Commissioner of Taxation [1938] 61 CLR 337, Dixon J. stated :

'The distinction between expenditure and outgoings on revenue account and on capital account corresponds with the distinction between the business entity, structure or organization set up or established for the earning of profit and the process by which such an organization operates to obtain regular returns by means of regular outlay, the difference between the outlay and returns representing profit ro loss. The business structure or entity or organization may assume any of an almost infinite variety of shapes and it may be difficult to comprehend under one description all the forms in which it may be manifested.......

In the attempt, by no means successful, to find some test or standard by the application of which expenditure or outgoings may be referred to capital account or to revenue account the courts have relied to some extent upon the difference between an outlay which is recurrent, repeated or continual and that which is final or made 'once for all,' and to a still greater extent upon a distinction to be discovered in the nature of the asset or advantage obtained by the outlay. If what is commonly understood as a fixed capital asset is acquired the question answers itself. But the distinction goes further. The result or purpose of the expenditure may be to bring into existence or procure some asset or advantage of a lasting character which will enure for the benefit of the organization or system or 'profit-earning subject'. It will thus be distinguished from the expenditure which should be recouped by circulating capital or by working capital.....

But the idea of recurrence and the idea of endurance or continuance over a duration of time both depend on degree and comparison.... Again, the lasting character of the advantage is not necessarily a determining factor..... There are, I think, three matters to be considered, (a) the character of the advantage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part, and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment......'

22. The expression '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 treated as a capital asset, though, however, Romer L.J. in Anglo-Persian Oil Co. Ltd. v. Dale [1932] 1 KB 124; 16 TC 253 (CA) agreed with Lord Rowlatt J., that by enduring benefit is meant enduring in the way that fixed capital endures. Attribute of permanence is largely a question of decree. Latham C.J., in Sun Newspaper Ltd'.s case [1938] 61 CLR 337 stated that the words 'permanent' or 'enduring' do not mean that the advantage 'will last for ever', but that distinction is between 'more or less recurrent expenses involved in running a business for the benefit of the business as a whole'.

23. In Regent Oil Co. Ltd. v. Strick [1966] AC 295, 312; [1969] 73 ITR 301, Lord Reid indicated that the determination of what is capital expenditure and what is revenue expenditure must depend rather on common sense than the strict application of any single principle. Lord Reid observed :

'Whether a particular outlay by a trader can be set against income or must be regarded as a capital outlay has proved to be a difficult question. It may be possible to reconcile all the decisions but it is certainly not possible to reconcile all the reasons given for them. I think that much of the difficulty has arisen from taking too literally general statements made in earlier cases and seeking to apply them to a different kind of case which their authors almost certainly did not have in mind-in seeking to treat expressions of judicial opinion as if they were words in an Act of Parliament. And a further source of difficulty has been a tendency in some cases to treat some one criterion as paramount and to press it to its logical conclusion without proper regard to other factors in the case. The true view appears to me to be that stated by Lord Macmillan in Van den Berghs Ltd. v. Clark [1935] AC 431 ; 3 ITR 17:

'While each case is found to turn upon its own facts, and no infallible criterion emerges, nevertheless the decisions are useful as illustrations and as affording indications of the kind of considerations which may relevantly be borne in mind in approaching the problem.'........ So it is not surprising that no one test or principle or rule of thumb is paramount. The question is ultimately a question of law for the court, but it is a question which must be answered in light of all the circumstances which it is reasonable to take into account, and the weight which must be given to a particular circumstance in a particular case must depend rather on common sense than on strict application of any single legal principle.'

24. The Regent Oil Co. Ltd'.s case [1966]AC 295; [1969] 73 ITR 301 as well as B.P. Australia Ltd. v. Commissioner of Taxation of the Common-wealth of Australia [1966] AC 224 (PC), underlines the difficulties involved in trying to ascertain the borderline between revenue and capital expenditure and the difficulties involved in borderline cases.

25. Adverting to the paucity of the determinative quality in any of the various tests, Simon's Taxes states at page 377 :

'In considering these tests it is essential to bear in mind that no one test is conclusive in any particular case; but, if a particular payment or receipt satisfies every test, there is at least strong reason for the view that the item an question is capital or revenue according to the result which the tests yield. The question has to be looked at reasonably, and, in the ultimate analysis, has to be decided by the General or special Commissioners on appeal. The question may be one of mixed law and fact, and the decision of the Commissioners is then open to review by the courts.'

26. The test so often referred to and applied by our Supreme Court as to require to be regarded as a pronouncement on the law on the matter is, however, the one suggested by Viscount Cave L.C. in Atherton's case [1926] AC 205 (HL). In Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax : [1955]27ITR34(SC) , after referring to Altherton's case [1926] AC 205 (HL) and certain other authorities on the distinction between capital expenditure and revenue expenditure and the test to be applied in that regard, the Supreme Court observed (page 45) :

'If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of fixed capital of the business or part of its circulating capital. If it was part of the fixed capital of the business it would be of the nature of capital expenditure and if it was part of its circulating capital it would be of the nature of revenue expenditure.'

27. In sitalpur Sugar Works Ltd. v. Commissioner of Income-tax : [1963]49ITR160(SC) , Lakshmiji Sugar Mills Co. Ltd.v. Commissioner of Income-tax : [1971]82ITR376(SC) and in Travancore-Cochin Chemicals Ltd. v. Commissioner of Income-tax : [1977]106ITR900(SC) the enunciation made by the Supreme Court in Assam Bengal Cement Company's case : [1955]27ITR34(SC) , which, in turn, referred with approval to Lord Cave's dictum was affirmed. The principle of distinction, therefore, is that if the expenditure was made for acquiring or bringing into existence an 'asset or advantage for the enduring benefit' of the business, it is in the nature of capital expenditure; on the other hand, if it is not made for the purpose of bringing into existence any such asset or advantage, but for running the business or working it to produce profits, it is a revenue expenditure.

28. It was conceded before us by Sri S. R. Rajasekhara Murthv, learned counsel for the department, that the new roads laid by the assessee were not on the land of the assessee and that the outlay did not bring into existence any asset. His contention was that the outlay on the roads was a capital outlay to obtain an 'enduring advantage'.

29. Sri Sarangan, learned counsel for the assessee, however, submitted that the contract between the assesee and Dr.(Mrs.) Savithri Bai was for a period of 5 years;that the roads laid by the assessee were 'access roads' constructed primarily and principally for the purpose of providing access to the mining areas so as to enable the assesse to use transport vehicles for conveyance of iron ores extracted in those areas;that the land on which the roads were formed was not owned by the assessee nor had it any interest in the same; since the expenditure was not made for the purpose of bringing into existence any asset or any asset or an advantage for the enduring benefit of the business, but for running the business, it was a revenue expenditure. The deductions from taxable income permitted under the statue partake of the nature of legislative graces.

30. In Herring v. Federal Commissioner of Taxation [1946] 72 CLR 543, the claim of the assessee for deductions of expenditure for construction of roads solely for the removal of timber under section 51 of the Income-tax Assessment Act 1936-38 of Australia which enabled for the deduction from assessable income of all outgoings incurred in gaining or producing assessable income 'except to the extent to which they are losses or outgoings of capital expenditure and, therefore, not deductible within the meaning of section 51. Rich J. observed :

'But in any case I have come to the conclusion that no deduction on account of the expenditure upon the road can be allowed at all. Section 51 expressly excepts from its operation losses and outgoings of capital or of a capital nature. In my opinion the expenditure by the taxpayer company is an outgoing of a capital nature. I do not found this opinion in any way on the suggestion that the company constructed the road for a dual or secondary purpose and not simply to enable the timber to be obtained. I accept the position that the road was constructed in pursuance of the agreement and because it was necessary for the purpose of removing the timber. But even so it amounted, as I think, to an outlay of a capital nature. It is not to the point that the outlay was made in connection with the creation of an asset of which the the value for the purpose of profitably working the timber or obtaining royalties therefrom would progressively diminish. That happens when capital is spent in acquiring patents, mining leases or concessions limited in point of time. Income-tax law may not always be just in the provisions it makes for writing off against assessable income the cost of such wasting or terminating assets. But that does not make their acquisition or creation any the less an affair of capital. The expenditure on the road formed a necessary outlay to obtain the 'enduring benefit' of the expected royalties. Lord Cave L.C., in using the phrase 'enduring benefit' in British Insulated and Helsby Cables Ltd. v. Atherton [1926] AC 205, was not thinking of advantages that are permanent. There is a difference between the lasting and the everlasting. The time over which the thing 'endures' is a matter of degree and one element only to be considered. Horses in the old days and motor trucks in these are plant and their acquisition for the purpose of transport in business usually involves a capital expenditure. But the horses were not immortal any more than the trucks have proved to be. Another test is that of Lord Dunedin, when Lord President, a test almost as frequently employed as Lord Cave's was, expenditure made 'once and for all' (Vallambrosa Rubber Co. Ltd. v. Farmer [1910] 5 TC 529 (C Sess). That test I think can give only one answer if applied to the case of the road.....'

31. Indeed, division No.10A of the Australian statute was intended to grant a 'sinking fund deduction' in respect of the cost of 'access roads' used in timber industry, as the expenditure in that behalf was otherwise not deductible under section 51.

32. Sri Sarangan urged that the facts of the present case do not attract the principle in Herring's case[1946]72 CLR 543, but the circumstances of Lakshmiji Sugar Mills Company's case : [1971]82ITR376(SC) are in point and apposite. In that case the assessee, a private company carrying on the business of manufacture and sale of sugar, paid to the cane development council certain amounts by way of contribution for the construction and development of roads between the various sugarcane-producing centres and the sugar factories of the assessee. The expenditure was incurred under the U.P. Sugar Cane (Regulation of Supply and Purchase) Act, 1953, for the development of roads which were originally the property of the Government and remained so even after the improvement had been done. There was no finding that the roads were altogether newly made or that the assessee would get an enduring benefit from those roads. In these circumstances, the Supreme Court held that the expenditure was not of a capital nature and had to be allowed as an admissible deduction in computing the profits of the assessee's business. This decision, therefore, is clearly distinguishable, and its analogy inapposite.

33. Sri Sarangan next placed strong reliance on B.P. Australia's case [1966] AC 224 (PC) referred to earlier and submitted that the principles enunciated therein are applicable to the facts of the present case. The B.P. Australia's case [1966] AC 224 (PC) was heard by the same judges, in a different capacity, who heard the Regent Oil Company's case [1966] AC 295; [1969] 73 ITR 301. The latter was heard before the House of Lords, whilst the former was heard by the same judges sitting as members of the Privy Council. In Regent Oil Company's case [1966] AC 295; [1969] 73 ITR 301 the agreements in question provided for a lease of the filling station site by the site owner to Regent for nominal rent, but in consideration of a premium, and a sub-lease granted on the same day by Regent to the retailer for the whole of the term of lease less a few days. The sub-letting periods ranged from five years to twenty-one years, and the premium varied from pound 2,000 to pound 183,000. The House of Lords held the payment to be of a capital nature.

34. In B.P. Australia's case [1966] AC 224 (PC), B.P. Company carried on business as supplier of petrol in Australia. In and after 1951, a system of sale through tied garages was introduced by another supplier. B.P. were asked by many retailers to remove their pumps. In endeavours to obtained stations throughout Australia by means of solo-site agreement, whereby the B.P. would make lump sum payments, called 'development allowances' to retailers for the improvement of service stations, B.P. spent in the tax year ended June, 1952, the sum of pound 2,70,569 either in payment direct to the retailers under solo-site agreement or by way of adjustments with the other co-operating companies in respect of such payments made by them. The solo-site agreement was an exclusivity agreement under which the retailer agreed to re-sell from his premises only brands of petrol approved by B.P. The average duration of a solo-site agreement was five years. The lump sum expenditure of B.P. involved in relation to this solo-site agreement for the year ended 30th June, 1952, was disallowed as a deduction in assessing B.P.'s profits for income-tax on the ground that it was capital expenditure. The Privy Council, reversing the majority decision of the Full Court of the High Court of Australia, held that these lump sum payments were expenditure of revenue rather than capital nature. The Privy Council held, inter alia, that the answer to the question whether the expenditure was of a revenue nature must be reached by a common sense appreciation of all the guiding features; that the character of the advantage secured by solo-site agreement pointed to the expenditure being being of a revenue nature as its purpose was to obtain orders for petrol by up to date marketing methods, and the lump sums were prima facie circulating capital coming back bit by bit on orders from retailers; that expenditure incurred in making radical alterations in company's marketing arrangements need not necessarily be capital expenditure; and that, though the duration of the agreement did not point clearly to revenue or capital, yet the fact that the payments were made on the average of five years was a neutral factor which gave no conclusive indication in favour of the view that the expenditure was capital.

35. The distinction between the Regent's case [1966] AC 295; [1969] 73 ITR 301 and B.P. Australia's case [1966] AC 224 (PC) would seem to be tha in Regent's case [1966] AC 295; [1969] 73 ITR 301, the sums paid were made for the acquisition of an interest in land and in B.P. Australia's case [1966] AC 224 (PC) there was no question of such interest. But both cases leave unanswered the question as to where the border line between capital and revenue payment is to be drawn, where no leasing arrangements are involved. In B.P. Australia's case [1966] AC 224 (PC), Lord Pearce, referring to the relevant criteria, stated at page 264.

'The solution to the problem is not to be found by any rigid test or description. It has to be derived from many aspects of the whole set of circumstances some of which may point in one direction, some in the other. One consideration may point so clearly that it dominates other and vaguer indications in the contrary direction. It is a common sense appreciation of all the guiding features which must provide the ultimate answer. Although the categories of capital and income expenditure are distinct and easily ascertainable in obvious cases that lie far from the boundary, the line of distinction is often hard to draw in border line cases; and conflicting considerations may produce a situation where the answer turns on questions of emphasis and degree. That answer :

'depend on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of legal rights, if any, secured, employed or exhausted in the process.' per Dixon J. in Hallstroms Pty. Ltd. v. Federal Commissioner of Taxation [1946] 72 CLR 634,648. As each new case comes to be argued felicitous phrases from earlier judgments are used in argument by one side and the other. But those phrases are not the deciding factor, nor are they of unlimited application. They merely crystallise particular factors which may incline the sale in a particular case after a balance of all considerations has been taken.'

36. The contention of Sri Sarangan that the common element of 'five years attract to the present case the principle in B.P. Australia's case [1966] AC 224 (PC) that the expenditure was of a revenue nature rests on consumptions which are incomplete and unsupportable. Indeed, B.P.Australia's case [1966] Ac 224 (PC) itself lays down that the solution to the problem is not to be found by any rigid test or description, but has to be derived from many aspects of the whole set of circumstances some of which may point in one direction, some in the other.

37. The considerations in the present case which, in our opinion, point so clearly as to dominate the other and vaguer indications to the contrary are those that bear upon the question whether the outlay brings into existence an 'advantage for the enduring benefit' of the business and pertains to that aspect of the structure and organisational set-up of the business which corresponds to the profit apparatus as distinct from its profit earning process.

38. The outlay in the present case is on the construction of access roads. The outly, undoubtedly, brings into existence an advantage. whether it is of an enduring nature is essentially a matter of degree. If this outlay had been made originally before the commencement of the actual work of transportation pursuant to the contract, it would have pertained more to the organisational set-up and the profit earning apparatus than to profit earning process. In our opinion, the outlay does not shed this essential element by reason alone of the circumstance that it was made during the performance of the contract of transportation of ore. This is apart, altogether, from the 'once for all' quality of the outlay which is made for construction of the access roads.

39. In our opinion, the outlay does, therefore, bring into existence an advantage for the enduring benefit of the business-enduring in the sense that it is reasonably expected to extend over the duration of the business venture under the contract. On an appreciation of the whole set of circumstances and all the guiding features the outlay must be held to belong to the structure and organisational set-up of the business. The outlay must accordingly be held to be of a capital and not revenue nature

40. In the result, for the reason stated hereinabove, we answer the first question in the negative and in favour of the assessee and against the revenue. We answer the second question in the affirmative and against the assessee and in favour of the revenue.

41. In the circumstances of the case, we make no order as to costs.


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