Madhusudan Rao, J.
1. This is a reference by the Income-tax Appellate Tribunal, Hyderabad Bench, under Section 256(1) of the I.T. Act, 1961. The question referred for the decision of the High Court is :
'Whether, on the facts and in the circumstances of the case, the assessee was entitled to deduct the sums of Rs. 1,06,333 and Rs. 2,55,103 as revenue expenditure for the assessment years 1964-65 and 1965-66, respectively ?'
2. The assesseee is the Singareni Collieries Company Ltd., Kothagudem. It carries on business in coal mines. A large number of labourers to work as coal miners are employed by the assessee. Under the Coal Mines Labour Fund Act, 1947, Coal Mines Labour Housing Board (which will hereinafter be referred to as 'the Board') was constituted for the construction of low cost houses for persons employed in the coal mines industries. The Board framed a scheme and in pursuance of the scheme the assessee constructed 1,424 miners' quarters during the assessment years 1964-65 and 1965-66. According to the said scheme, the quarters were to be constructed by the assessee-company in accordance with the specifications laid down by the Board and the Board was to pay a maximum amount of Rs. 3,100 per quarter to the assessee-company. The quarters thus constructed including the site on which the quarters stand belong to, and vest in, the Board. The quarters shall be used for providing residential accommodation to the labourers employed by the assessee-company. The buildings shall be durable for an estimated life of 15 years as per the specificationss of the Board. The terms of the assessee's agreement with the Board would be in force for a period of 15 years from the date of completion of the quarters and the assessee would be paying a nominal rent of Re. 1 per month for each tenement to the Board. The allotment and control of the use of accommodation is entirely in the discretion of the assessee so long as the allotment is made only to the labourers employed by the assessee. Towards the quarters constructed in the year 1964-65, the assessee-company incurred a total expenditure of Rs. 45,20,723. At the maximum rate of Rs. 3,100 per quarter, the Board paid the assessee an amount of Rs. 44,14,400, leaving a balance of Rs. 1,06,333. Towards the quartersconstructed during the assessment year 1965-66, the assessee incurred a total expenditure of Rs. 42,25,420. The assessee was to be paid by the Board a sum of Rs. 39,70,317 leaving a balance of Rs. 2,55,103.
3. Before the ITO, the assessee claimed the two items of expenditure towards the construction of the quarters during the two assessment years as revenue expenditure made towards the welfare of the workmen and staff. The ITO disallowed the claim holding that the expenditure was in the nature of capital expenditure not allowable as admissible deduction. On appeal by the assessee, the AAC upheld the ITO's orders. On further appeal by the assessee, the Appellate Tribunal found that the two items of expenditure are revenue in nature and that they cannot be construed as items of capital expenditure.
4. Sri P. Rama Rao, the learned standing counsel for the income-tax department, contends that the expenditure in question satisfied the tests laid down for capital expenditure. He urges that the assessee entered into the agreement with the Board on its own accord and not under any legal obligation and that the expenditure incurred for the building of residential accommodation for the assessee's employees was an out and out expenditure incurred once for all and cannot be considered as a part of the day-today expenditure of the company's business. It is further contended that the expenditure has to be regarded as capital in nature in so far as it resulted in a positive asset to the business of the company being an enduring benefit to the company whose business would augment on account of the provision of residential accommodation to its employees. In support of his submissions, Sri Rama Rao relies on Assam Bengal Cement Co. Ltd. v. CIT : 27ITR34(SC) , Taj Mahal Hotel v. CIT : 66ITR303(AP) Ganesh Sugar Mills Ltd. v. CIT : 73ITR395(Cal) , Dewan Sugar & General Mills Pvt. Ltd. v. CIT : 77ITR572(All) , Lakshmiji Sugar Mills Co. P. Ltd. v. CIT : 82ITR376(SC) and CIT v. T.C.C. Ltd. : 87ITR66(Ker) .
5. Sri A. Satyanarayana Rao, the learned counsel for the assessee, on the other hand contends that the quarters constructed are not the property of the assessee, that the assessee merely wanted to take advantage of an amenity which the Board wanted to provide for the members of the assessee's staff and that in so taking advantage, the assessee had to incur certain expenditure, the result of which is not permanent in nature but would endure only for a limited period of 15 years. It is argued that the quarters do not constitute any such asset of the assessee-company as to characterise the expenditure incurred as capital in nature. According to Sri Satyanarayana Rao the amounts were spent in the course of business for securing comforts and conveniences to the employees for a limited period and not to secure a permanent benefit to the company. Relianceis placed by Sri Satyanarayana Rao on CIT v. T. V. Sundaram Iyengar & Sons (P.) Ltd : 95ITR428(Mad) . CIT v. Associated Cement Companies Ltd. : 96ITR650(Bom) and also Assam Bengal Cement Co. Ltd. v. CIT [ : 27ITR34(SC) .
6. Neither 'capital expenditure' nor 'revenue expenditure' has been denned in the repealed Indian I.T. Act, 1922, or the LT. Act, 1961. The two kinds of expenditure are substantially different and they have to be construed in the ordinary sense of commercial trading and business dealings. The line of demarcation between 'capital expenditure' and 'revenue expenditure', though real, is indeed very subtle and thin. An examination of the various authorities cited at the Bar shows that certain broad tests have been attempted to be laid down and that it was not, however, possible to lay down any general rule which can be exhaustive and accurate so as to cover every possible case. In Benarsidas Jagannath, In re a Full Bench of the Lahore High Court indicated certain broad principles which are approved by the Supreme Court as useful tests that may be applied to the extent it would be possible in each case. The principles are: (1) Outlay shall be deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment of the business ; (2) Expenditure may be treated as capital when it is made once for all and with a view to bringing into existence an asset or an advantage for the enduring benefit of trade ; and (3) if capital is withdrawn for the purpose of expenditure from the fixed capital of the business and not from its circulating or floating capital, such expenditure is capital in nature. It should, however, be remembered that human affairs are so varied and diverse and business operations are so complex and complicated that it would be well nigh impossible to lay down any effective test that can be applied to all situations. In Abdul Kayoom v. CIT : 44ITR689(SC) speaking for the Supreme Court, Hidayatullah J. observed as follows (p. 703) :
'...none of the tests (laid down in various authorities) is either exhaustive or universal. Each case depends on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases...by matching the colour of one case against the colour of another. '
7. The real difference between 'capital expenditure' and 'revenue expenditure' lies mainly in the aim and object of the expenditure and the exact nature of the expenditure can be determined only with reference to the particular facts and circumstances attendant upon the expenditure in question.
8. In Assam Bengal Cement Co. Ltd. v. CIT : 27ITR34(SC) , for the purpose of carrying on its business of manufacturing cement, the Assam Bengal Cement Company Ltd. acquired from the Government of Assam a lease of certain limestone quarries for a period of twenty years on half-yearly rents and on certain royalties. In addition to the rents and royalties, the company agreed to pay the Government annually a sum of Rs. 5,000 during the whole period of the lease as a protection fee and in consideration of this payment, the Assam Government undertook not to grant to any person any lease, permit or prospecting licence for limestone in a group of quarries without a condition that no limestone should be used for the manufacture of cement. The cement company also agreed to pay Rs. 35,000 annually for five years as a further protection fee and the Government in consideration of that payment gave a similar undertaking in respect of the whole district. The question was whether the sums of Rs. 5,000 and Rs. 35,000 paid by the cement company to the Government should be treated as revenue expenditure or as capital expenditure. While resolving the question and holding the sums to be in the nature of capital expenditure, the Supreme Court observed as follows at pages 47 and 48.
'Under Clause 4 of the deed the lessors undertook not to grant any lease, permit or prospecting licence regarding limestone to any other party in respect of the group of quarries called the Durgasil area without a condition therein that no limestone shall be used for the manufacture of cement. The consideration of Rs. 5,000 per annum was to be paid by the company to the lessor during the whole period of the lease.......It was anenduring benefit for the benefit of the whole of the business of the company and came well within the test laid down by Viscount Cave. It was not a lump sum payment but was spread over the whole period of the lease and it could be urged that it was a recurring payment. The fact, however, that it was a recurring payment was immaterial, because one had got to look to the nature of the payment which in its turn was determined by the nature of the asset which the company had acquired. The asset which the company had acquired in consideration of this recurring payment was in the nature of a capital asset, the right to carry on its business unfettered by any competition from outsiders within the area. It was a protection acquired by the company for its business as a whole......
The further protection fee which was paid by the company to the lessor under Clause 5 of the deed was also of a similar nature. It was no doubt spread over for a period of 5 years, but the advantage which the company got as a result of the payment was to enure for its benefit for the whole of the period cf the lease unless determined in the manner provided in the last part of the clause......It was no part of the working or opera-tional expenses of the company. It was an expenditure made for the purpose of acquiring an appreciated capital asset which would no doubt by reason of the undertaking given by the lessor make the capital asset more profit yielding.'
9. What has been laid down in the above case is that if expenditure is incurred for the acquisition of an enduring benefit for the whole of the business of the company, such expenditure would be capital expenditure. It has further been pointed out that the enduring benefit need not necessarily be a permanent benefit. It would be sufficient if it is not purely temporary or ephemeral. The expression 'enduring benefit' is intended only to indicate a benefit for a sufficiently long period and not a mere short-lived benefit.
10. In Taj Mahal Hotel v. CIT : 66ITR303(AP) a Division Bench of this court held that a sum of Rs. 60,000 spent by the Taj Mahal Hotel for constructing new rooms for the comfort and convenience of guests is capital expenditure and not revenue expenditure. The assessee in that case was carrying on hotel business. In the year 1956, he took a fresh lease on a hotel building for 10 years on a rent of Rs. 1,300 per month with an option to renew the lease for another 10 years on an enhanced rent of Rs. 1,400. Under the lease deed, the assessee was given the liberty of making any alterations or new constructions with the permission of the lessor. On the termination of the lease, the assessee was entitled to take away the fittings and fixtures while the structures remained the property of the lessor. During the accounting year 1956-57, the assessee put up new rooms for the comfort and convenience of guests and claimed the expenditure of Rs. 60,000 as allowable deduction either as rent spread over a number of years or as a revenue expenditure. The Division Bench held that the improvements effected by the assessee were of enduring advantage, though not everlasting, for the assessee's business during the period of the lease and that the expenditure was neither 'rent' nor 'premium '.
11. In Ganesh Sugar Mills Ltd. v. CIT : 73ITR395(Cal) , a Division Bench of the Calcutta High Court disallowed the claim of an assessee in respect of an amount contributed by the assessee to a co-operative society for the purpose of development of the roads giving access to the factories of the assessee-company as well as other sugar mills of the locality. The roads were constructed by the co-operative society partly on the land owned by the assessee-company but were meant for common use by the cane growers as well for transport purposes of the factory owners. The Division Bench held that the expenditure in question brought into existence a new asset, viz., the roads, which facilitated the carrying on of the assessee's business.
12. In Dewan Sugar & General Mills Pvt. Ltd. v. CIT : 77ITR572(All) , the Allahabad High Court held that the amounts contributed by the assessee, a sugar and general mills, to the State Government for construction of new roads for improving transport facilities, and not for repair of existing roads, is capital expenditure, in so far as the expenditure was incurred for bringing into existence a capital asset of enduring benefit to the business of the assessee.
13. In Lakshmiji Sugar Mills Co. P. Ltd. v. CIT : 82ITR376(SC) , the assessee was a private company carrying on the business of manufacture and sale of sugar. The company paid to the Cane Development Council certain amounts by way of contribution for the construction and development of roads between the various sugar producing centres and the sugar factories of the assessee. The expenditure was incurred under a statutory obligation for the development of roads which were originally the property of the Government and remained to be the property of the Government even after the improvement had been done. It was held by the Supreme Court that the expenditure was not of a capital nature and had to be allowed as an admissible deduction as it was incurred for the purpose of facilitating the running of the assessee's motor vehicles employed for transportation of sugarcane to the factories of the assessee. The facts of the case clearly show that the expenditure was incurred for running the business or working it with a view to producing profits without the assessee gaining any advantage of an enduring benefit to itself.
14. In CIT v. T.C.C. Ltd. : 87ITR66(Ker) , the assessee is a public limited company engaged in the manufacture of chemicals. Along with three other public undertakings, the assessee approached the Government of Kerala for laying a new road from the place where the assessee's factory is situated. The assessee was supplying a portion of its products to the three companies which joined it in approaching the Government. The assessee was receiving and despatching the materials required for and produced in its factory through lorries. At the material time the area in which the assessee-company was situate was not served by pucca roads. The Government of Kerala and the companies agreed that the Government will bear the cost of the acquisition of land and 25% of the cost of construction of the road and that the four companies will share 75% of the cost of construction. The assessee claimed to deduct this share amount from its total income as revenue expenditure for the year in question. The Kerala High Court held that by the construction of the road, the assessee obtained an advantage of an enduring nature and that the amount contributed, therefore, constituted capital expenditure.
15. In CIT v. T. V. Sundaram Iyengar & Sons (P.) Ltd. : 95ITR428(Mad) , the assessee-company purchased land in the name of the District Collector for the purpose of constructing houses for the company's workers by the Government under the subsidised industrial housing scheme sponsored by the State Government and claimed the purchase price as an admissible deduction on the ground that it is revenue expenditure incurred towards the welfare of the company's workers. The Madras High Court held that the expenditure was incurred wholly and exclusively for the purpose of the business of the assessee-company and that the assessee-company had not acquired for itself any capital asset. It was further held that, as the assessee-company would not have any interest in the buildings to be built on the land and their obligation would be over by contributing their share towards the scheme, it cannot be said that the assessee-company in spending the money expected to acquire or bring into existence any advantage for the enduring benefit of the business but the expenditure was incurred more as a matter of commercial expediency in pursuance of an agreement.
16. In CIT v. Associated Cement Companies Ltd. : 96ITR650(Bom) the assessee was a cement factory which is situate outside the municipal limits of a town. The Government decided to include the area on which the factory was situate within the municipal limits. Negotiations ensued between the Government and the assessee. The assessee agreed to provide certain amenities to the town including provision of water supply and the Government on its part undertook not to include the properties of the factory within the municipal limits for 15 years so that the assessee would not have to pay municipal taxes for that period. During the accounting year 1958-59, the assessee spent Rs. 2,09,459 on installing pipelines, etc., which became the property of the municipal committee. The Bombay High Court held that by incurring the expenditure, the assessee had obtained avoidance of certain disadvantages for a limited period of 15 years and that in so far as the expenditure was made for the convenient and economical running of the business for the period of the agreement, the sum of Rs. 2,09,459 should be allowed as a deduction in determining the profits of the assessee.
17. As observed already, each case of expenditure has to be decided on its own merits mainly with reference to the aim, object and result of the expenditure. In the instant case, the expenditure in question was incurred by the assessee as a measure of business expediency. The Board agreed for the construction of 1,424 quarters for the miners employed by the assessee. The Board also agreed to incur an expenditure of Rs. 44,14,400 in the first year and Rs. 33,70,317 during the second year. The work of construction was taken up by the assessee and, while executing the workthe assessee had to incur extra expenditure. The assessee did not acquire any ownership over the quarters. The ownership vested only in the Board. The assessee had to pay to the Board a monthly rent, even though the sum is nominal. No doubt, as pointed out by Sri Rama Rao, the expenditure was made by the assessee once for all but this circumstance by itself cannot be a ground to hold that the expenditure is capital in nature. As pointed out by the Lahore Full Bench in Benarsidas Jagannath, In re it is not enough if the expenditure is made once and for all. It should also be made with a view to bringing into existence an asset or an advantage for the enduring benefit of the trade. Sri Rama Rao contends that by providing the quarters to its workmen, the assessee-company had contented workmen whose work is bound to result in extra profits or benefit to the assessee-company. This contention does not commend itself to us as correct. What is necessary to classify the expenditure as capital in nature is that it should have been incurred once and for all and for bringing into existence an enduring benefit. 'Enduring benefit' is a relative term of contextual interpretation. In the light of the possible and probable long span of the company's life, the indirect profit which the assessee-company may derive through contented workmen for a limited period of just 15 years cannot constitute such a lasting benefit as to classify the expenditure as capital in nature. The expenditure was incurred primarily for the welfare of the employees of the assessee. Whether the expenditure was incurred on account of a statutory obligation as in the case of Lakshmiji Sugar Mitts Co. P. Ltd. v. CIT : 82ITR376(SC) or on a voluntary basis because of the assessee's desire to provide facilities to its employees on account of its expectations of better work from them, would not make any difference. The assessee was merely acting as an agent of the board in the construction of the quarters. If the assessee had constructed the quarters within the maximum amount prescribed by the board, the assessee would not have incurred any expenditure from its funds. The extra expenditure had to be incurred as the assessee could not construct the quarters according to the specifications of the Board with the amount allotted by the Board. Under the circumstances, it is more than clear that the assessee incurred the expenditure not for the purpose of bringing into existence an enduring benefit for its business but for carrying on its business profitably.
18. For the reasons recorded, we hold that the assessee is entitled to deduct the sum of Rs. 1,06,333 and Rs. 2,55,103 as revenue expenditure for the assessment years 1964-65 and 1965-66, respectively. The reference is answered accordingly in favour of the assessee. The revenue shall pay to the assessee the costs of the reference. Advocate's fee Rs. 250.