Satish Chandra, C.J.
1. The assessee is a limited company doing business in the manufacture and sale of sugar. In respect of the assessment year 1957-58, the Tribunal has at its instance, referred to us the followingquestions of law :
' (1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in disallowing the legal expenses of Rs. 11,069 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the amount of Rs. 66,194 incurred in connection with the litigation before the Allahabad High Court is not an allowable deduction or an outgoing ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in not allowing Rs. 2,04,273 in respect of the cane purchase price ?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in not allowing Rs. 32,004 in respect of Molasses Fund Quarters '
2. In respect of the first question, the position is that the company paid a sum of Rs. 11,069 to lawyers in connection with the amalgamation of the Raza Sugar Company with the Buland Sugar Co. Ltd., Rampur. After amalgamation, the Buland Sugar Co. Ltd., Rampur, merged in Raza Sugar Company and the amalgamated company came to be called Raza Buland Sugar Co. Ltd. The company's contention was that these expenses were incurred as an incident to the business and were wholly and exclusively laid out for those purposes. The Tribunal repelled the submission. It held that there can be no dispute that by amalgamation the company made substantial changes in its profit earning structure. The framework of the profit earning operation underwent changes. The expense was capital in nature.
3. We have heard learned counsel and we see no reason to disagree with the view taken by the Tribunal. The expenses were incurred prior to the coming into existence of the present assessee, namely, Raza Buland Sugar Co. Ltd. They were expenses integrally connected with the creation of the assessee-company. They were clearly capital in nature.
4. In respect of the second question, the position is that the assessee-company paid Rs. 66,194 as legal expenses to certain shareholders who had challenged the declaration of dividend by Buland Sugar Co. in January, 1952. The declaration of dividend was in relation to the shares in Dalmia Cement Ltd. held by Buland Sugar Co. Ltd. A group of shareholders filed an application in the High Court against the managing agents and directors of the two companies, alleging mismanagement and misuse of funds. The High Court passed an injunction order on February 28, 1952, staying the declaration of dividends. In January, 1957, the matter was compromised. One of the terms of the compromise was that the petitioners would refrain from challenging the declaration of the dividends provided they are paid expenses of litigation. They came to Rs. 66,194 which the assessee-company paid. It is clear that neither of the two companies was a party to the litigation. The litigation commenced long prior to the coming into existence of the present company, namely, Raza Buland Sugar Co. Ltd. The litigation was between the managing agents and directors on the one hand and the shareholders on the other. The company was not directly concerned or interested. The litigation was not incidental to the carrying on of the business by the assessee. It was caused by internal quarrels between the shareholders and the directors and managing agents which related to the administration of the affairs of the company. We agree with the Tribunal that this item was not an allowable expense.
5. The third question relates to a sum of Rs. 2,04,273. In the year 1957-58, the assessee-company purchased sugarcane for which it was liable to pay an amount of Rs. 1,47,38,577 computed in accordance with the price for the sugarcane fixed by statutory orders. The company, however, retained a sum of Rs. 2,04,273 by way of provisions for low recovery of sugar from cane purchased from Tarai farms. This sum was worked out at 2 annas per maund. After a good deal of negotiations with the Government and other parties, the assessee-company paid to the cane growers of Tarai area a further amount at the rate of I anna per maund. It claimed deduction of the entire amount as revenue expenditure. It may be mentioned that the company paid at the rate of 1 anna per maund to the cane growers as a result of the compromise which was effected on April 27, 1963. The entire claim was, however, disallowed and the disallowance was upheld on appeal. The Tribunal took the view that the liability was not a statutory liability. It was dependent upon the recovery being established to be normal bargaining between the parties and the attitude of the Government. The liability cannot, therefore, be said to arise till there was an enforceable agreement which occurred only in May, 1962.
6. We, however, are unable to agree with the Tribunal. It is true that the company made provision for the entire amount of Rs. 2 lakhs and odd. It is not disputed that the Govt. fixes the price of cane purchased by sugar factories under the Sugarcane Control Orders. According to that price, the company had to pay a price of Rs. 1,47,38,577. It, however, retained a sum of Rs. 2,04,273 by way of provision for the low recovery of sugar from the cane purchased from Tarai area and it was entitled to rebate which it estimated at the rate of 2 annas per ma and. Subsequently, it transpired that it was entitled to retain by way of rebate a sum at the rate of anna one per maund only. The balance was actually paid.
7. The liability of the assessee-company to pay the price for sugarcane fixed by statutory orders was in respect of the full amount including the so-called rebate. It was the assessee-company which was liable to pay the entire sum as the price of the cane purchased by it. The liability was hence there, though the assessee-company did not clear it in the assessment year in question. The claim, therefore, cannot be repelled on the ground that the liability did not arise. The subsequent decision with the aid of the Govt. was only quantification of the liability, which undoubtely accrued at the time of the purchase of the sugarcane in the year 1957-58. Since the liability was quantified during the pendency of the assessment proceedings, the quantified amount alone was allowable as deduction. (See CIT v. Burhwal Sugar Mills Ltd.  82 TR 784. In our opinion, the assessee-company was entitled to an allowance at the rate of 1 annaper maund for the cane purchased from the Tarai farms, namely, Rs. 1,02,136.50.
8. The last question relates to an amount of Rs. .32,004. It appears that the State Government introduced a scheme for construction of workmen's staff quarters. Under it, the company was to lease out its land near its factory to the U.P. Housing Board, The Govt. was to contribute some amount for construction of staff quarters for the factories and the balance by the factory owners and contractors. These staff quarters were to remain the property of U.P. Sugar and Power Alcohol Housing Board and they were to be leased out to the factory owners on the agreed terms and conditions. Forty quarters were built under this scheme. The assessee gave out some land. It also paid a sum of Rs. 32,004 towards the cost of construction of the quarters. The assessee claimed that it had no title to the quarters. The expenditure was revenue in nature and was allowable as such. The Tribunal repelled this plea. It held that there was no getting away from the fact that the assessee-company derived an advantage of an enduring character in that it secured forty workmen's quarters for exclusive user by its workers for an unlimited period of time. The circumstance that the assessee was compelled to agree to the scheme was irrelevant in so far as the nature of the expense is concerned.
9. Mr. S. N. Verma, learned counsel for the assessee, strongly relied upon a decision of the Supreme Court in Lakshmiji Sugar Mills Co. P. Ltd. v. CIT : 82ITR376(SC) . In this case, the Supreme Court was dealing with expenses incurred for the repair of a road. It was held that though the company enjoyed an advantage of enduring nature inasmuch as its transport facilities were improved by incurrence of the expenditure on the repair of the road, yet it was a revenue expense because it was spent for facilitating the day to day running of the business. This case is distinguishable. In that case no asset of an enduring nature came into existence. In the present case, quarters were freshly built. They were exclusively used by the assessee company, and though the company was not an owner, it was entitled to its exclusive user for an unlimited period of time. In the present case, the facts are more akin to those in the case of Travancore-Cochin Chemicals Ltd. v. CIT : 106ITR900(SC) . In that case, the assessee incurred expenditure for laying out a new road to facilitate its business. It was held that the amount spent was capital expenditure. By having the new road constructed for the improvement of 'transport facilities the appellant acquired an advantage of an enduring nature and so it was a capital expenditure. So is the case here.
10. We, therefore, answer the first, second and fourth questions in favour of the department and against the assessee. We answer the third question by holding that, on the facts and in the circumstances of the case, the Tribunal was justified in not allowing Rs. 1,02,136 50. The remaining sum of Rs. 1,02,136.50 in respect of the cane purchase price was an allowable expenditure. Parties will, however, bear their own costs.