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H.R. Sugar Factory (P.) Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberMiscellaneous I.T. Case No. 598 of 1964
Judge
Reported in[1970]77ITR614(All)
ActsIncome Tax Act, 1922 - Sections 4(3)
AppellantH.R. Sugar Factory (P.) Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateAshok Gupta and ;B.L. Gupta, Advs.
Respondent AdvocateShanti Bhushan, Adv. General and ;R.R. Misra, Adv.
Excerpt:
- - it was held that the money was spent not so much to bring about any asset or advantage of enduring benefit to itself but to run the business efficiently and conveniently. 24,904 was incurred in resurfacing with concrete the approach roads which had fallen into a bad state......whether, on the facts and in the circumstances of the case, the payment of rs. 25,000 made by the assessee-company to the government towards road development fund was a capital expenditure and, hence, not allowable under the income-tax act (2) whether, on the facts and in the circumstances of the case, the sum of rs. 40,419 received by the assessee-company from the government for early start of crushing of sugarcane represented taxable income in the hands of the assessee-company under the provisions of the indian income-tax act, 1922 ?' 2. the first question refers to the payment of rs. 25,000 by the assessee-company to the government towards road development fund. it has been found that the purpose of the fund was to convert kachcka roads into pucca roads. the question is whether this.....
Judgment:

V.G. Oak, C.J.

1. This is a reference under Section 66 of the Indian Income-tax Act, 1922. The assessee is a limited company, which manufactures sugar. The assessment year is 1958-59. During the relevant accounting period the assessee made a payment of Rs. 25,000 to the Government as contribution towards road development fund. The assessee claimed deduction for this amount of Rs. 25,000. Secondly, the assessee received from the Government a sum of Rs. 40,419 for early start of crushing of sugarcane in accordance with a Government press note dated October 12, 1956. The assessee contended that this sum did not represent the assessee's income. On both the points the Income-tax Officer found against the assessee. As regards the first item, it was held that the sum of Rs. 25,000 represented capital expenditure. On the second point, it was held that the receipt of Rs. 40,419 represented the assessee's income. Assessment was made accordingly. This view was upheld in appeal by the Appellate Assistant Commissioner and by the Appellate Tribunal.

2. At the instance of the assessee, the Tribunal has referred the following two questions to this court:

'(1) Whether, on the facts and in the circumstances of the case, the payment of Rs. 25,000 made by the assessee-company to the Government towards road development fund was a capital expenditure and, hence, not allowable under the Income-tax Act

(2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 40,419 received by the assessee-company from the Government for early start of crushing of sugarcane represented taxable income in the hands of the assessee-company under the provisions of the Indian Income-tax Act, 1922 ?'

2. The first question refers to the payment of Rs. 25,000 by the assessee-company to the Government towards road development fund. It has been found that the purpose of the fund was to convert kachcka roads into pucca roads. The question is whether this was revenue expenditure or capital expenditure.

3. In Commissioner of Income-tax v. Hindusthan Motors Ltd., [1968] 68 I.T.R. 301 (Cal) the location of the factory of a motor car manufacturing company was at a little distance from the main trunk road. There was an approach road from the main trunk road to the factory premises of the assessee. The road belonged to the Government of West Bengal. The approach road fell into disrepair and began to cause transportation difficulties to the assessee. The Government was not prepared to meet expenses for repairs. Thereupon, the assessee offered to contribute a sum of Rs. 39,770 for improvement of the approach road. It was held that the money was spent not so much to bring about any asset or advantage of enduring benefit to itself but to run the business efficiently and conveniently. It was, therefore, held that this expenditure should be allowed under Section 10(2)(xv) of the Indian Income-tax Act, 1922.

4. In Commissioner of Income-tax v. S. B. Ranjit Singh, [1955] 28 I.T.R. 14 the assessee had leased a hotel with furnishings and fittings for 20 years. An expense of Rs. 24,904 was incurred in resurfacing with concrete the approach roads which had fallen into a bad state. It was held that the expenditure was an allowable deduction. The expense was incurred in respect of current repairs.

5. A somewhat similar case came before us in Dewan Sugar and General Mills (P.) Ltd. v. Commissioner of Income-tax, [1970] 77 I.T.R. 572 (All.) (I.T.R. No. 835 of 1963 decided on 12-9-1969). In that case expenditure was incurred for constructing new roads. We held that a capital asset had come into existence. Consequently, the expenditure could not be allowed under Section 10(2)(xv)of the Act.

6. In the present case, the sum of Rs. 25,000 was spent by the assessee in order to have kachcha roads converted into pucca roads. Conversion of kachcha roads into pucca roads cannot be placed on the footing of current repaiis. Pucca roads are substantially different from kachcha roads. It may be that the land, on which the roads stand, does not belong to the assessee. But that circumstance does not alter the fact that the pucca roads built on the land are likely to be of permanent benefit to the assessee. The pucca roads brought into existence an advantage of enduring nature. Consequently, this expenditure of Rs. 25,000 must be treated as capital expenditure. The Tribunal was right in not allowing deduction on account of this expenditure of Rs. 25,000.

7. The second question relates to the sum of Rs. 40,419 received by the assessee from Government. This receipt was in pursuance of a policy outlined by the Government under its press note, dated October 12, 1956. Annexure ' D ' to the statement of the case is a copy of the press note, dated October 12, 1956. The first paragraph of the press note ran thus :

' With a view to enabling the sugar factories in Uttar Pradesh to start early crushing during the ensuing session, the Central Government have decided in consultation with the U. P. Government, to allow such factorieswhich start crushing by 4th November, 1956, a concession of four annas per maund on cane crushed up to the 12th November, 1956.'

8. In Senairam Doongarmall v. Commissioner of Income-tax, [1961] 42 I.T.R. 192 ; [1962] 1 S.C.R. 257 (S.C.) the assessee owned a tea estate. The factory and other buildings of the estate were requisitioned for defence purposes by the military authorities. Manufacture of tea was stopped completely. The assessee was paid compensation for the years 1944-45 under the Defence of India Rules. The question arose whether the amounts of compensation were revenue receipts taxable in the hands of the assessee. It was held that the compensation paid to the assessee did not partake of the character of profits, because business not having been done by the assessee, no question of profits taxable under Section 10 arose. It will be noticed that in that case the tea business of the assessee had been stopped completely. That is not the position in the instant case. The assessee was engaged in its sugarcane business at the time it received a subsidy from the Government.

9. The learned counsel for the assessee raised two contentions in support of his suggestion that the sum of Rs. 40,419 was not taxable income. Firstly, it was contended that this sum represented capital receipt. In the alternative, it was contended that the receipt was of a casual nature.

10. In Godrej & Co. v. Commissioner of Income-tax, [1954] 25 I.T.R. 108 (Bom.) there was agreement between the assessee-firm and the company of which the assessee-firm was managing agent. The assessee-firm was appointed managing agent for a period of thirty years. The assessee-firm was entitled to receive a commission at the rate of twenty per cent. on the net profits of the company. Subsequently, it was decided that the rate of commission should be reduced from twenty per cent. to ten per cent. The assessee-firm was paid a sum of Rs. 7,50,000 as compensation for releasing the company from the onerous term as to remuneration. It was held that the remuneration received by the firm was compensation for the right to get higher remuneration, and was, therefore, a capital receipt.

11. In the present case, the sum of Rs. 40,419 received by the assessee does not represent compensation for injury of a permanent character. It appears that the Government paid this sum to the assessee as inducement for early crushing of sugarcane.

12. Sub-section (3) of Section 4 of the Act enumerates a number of exemptions. Clause (vii) of Sub-section (3) of Section 4 of the Act is :

' Any receipts ..... not being receipts arising from business or the exercise of a profession, vocation or occupation, which are of a casual and non-recurring nature, or are not by way of addition to the remuneration of an employee.'

13. A somewhat similar case came before this court in Ratna Sugar Mills Co. Ltd. v. Commissioner of Income-tax, [1958] 33 I.T.R. 644 (All). On the basis of recommendations of the Labour Wage Enquiry Committee for payment of increased wages to workmen employed in sugar factories, the U. P. Government ordered sugar factories within U.P. to pay wages at enhanced rates. In order to implement this order, the Government paid subsidy to all sugar factories at the rate of nine annas per maund of sugar produced by each factory. It was held that the payment was made in the form of subsidy with the object of compensating the assessee for the loss of profits arising to it from being compelled to pay additional wages to workmen. Payment was ior the purposes of the business of the company and not for a separate or distinct purpose. The amount paid to the assessee was a trading receipt and was taxable.

14. As already pointed out, the subsidy paid to the present assessee was by way of encouragement for early crushing (before November 12, 1956). The payment was closely connected with the business carried on by the assessee. Since the receipt arose from the assessee's business, the present case is not covered by Clause (vii) of Sub-section (3) of Section 4 of the Act.

15. As explained above, the receipt was not of a capital nature. It may be that the receipt was of a casual nature. But, since the receipts arose from the assessee's business, the case is not covered by Section 4(3)(vii) of the Act. The Tribunal was right in holding that the receipt of Rs. 40,419 by the assessee was its taxable income.

16. We answer both the questions referred to the court in the affirmative, and against the assessee. The assessee shall pay the Commissioner of Income-tax, U.P., Rs. 200 as costs of the reference.


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