SHUKLA J. - This reference under s. 256(1) of the I.T. Act, 1961, has been made by the Income-tax Appellate Tribunal, Indore Bench, Indore, stating the case and seeking our opinion on the following questions :
'(1) Whether, on the facts and in the circumstances of the case, the expenditure incurred by assessee towards construction of the metal roads on trenching grounds was an item of revenue deduction and
(2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to depreciation on the amount of the cost of construction of metal road on the trenching grounds ?'
Facts stated and not disputed may be briefly set out. The assessee is local body. Assessment year in question is 1972-73 for which the accounting period on March 31, 1972. The assessee derived income from sale of manure prepared out of waste and night soil dumped in the trenching ground outside the municipal limits. In its return of income, the assessee had claimed deduction of Rs. 67,748 incurred on construction of metal roads over the trenching grounds as revenue expenditure. It was urged on behalf of the assessee that the trenching grounds where manure was processed and prepared was at a distance of 5 or 6 miles from the corporation limits and away from the main road. The assessee had to construct metal roads to approach about 500 trenches for dumping the waste and night soil in the trenches and transporting the processed manure. According to the assessee this expenditure was revenue expenditure incurred wholly and exclusively for the purpose of the assessees business.
The ITO disallowed this expenditure on the ground that it was incurred by the assessee for bringing into existence a benefit of enduring nature and thus the expenditure was capital. In appeal, the AAC confirmed the ITOs order. Before the AAC and also before the Appellate Tribunal an alternative submission was made on behalf of the assessee and it was claimed that if the expenditure was capital, the assessee was entitled to claim depreciation thereon under s. 32(1) of the I.T. Act. The AAC and, later the Tribunal, rejected the appeals and confirmed the order of the ITO. They also rejected the claim for depreciation on the ground that the metal roads did not come within the ambit and scope of s. 32(1) of the Act.
Learned counsel for the assessee argued before us that under s. 67 of the Municipal Corporation Act, 1956, the Corporation was duty bound to remove the garbage and night soil out of the Corporation limits and for that purpose it was required to construct metal roads on the open grounds where the trenches were dug by the Corporation. It was considered desirable that the Corporation should prepare compost out of this garbage and night soil so that the same be used as manure. Referring to some observations by the Supreme Court in Lakshmiji Sugar Mills Ltd. v. CIT : 82ITR376(SC) , the learned counsel urged that the expenditure was incurred by the assessee under a statutory obligation for the removal of night soil and, therefore, this expenditure ought to have been treated as revenue expenditure. It was also urged that the construction of such approach roads was indispensable for transportation of compost for earning income by sale thereof.
The case of Lakshmiji Sugar Mills Ltd. : 82ITR376(SC) has no application to the facts of this case. In the cited case the assessee who carried on the business of manufacture and sale of sugar had paid certain contribution to the Cane Development Council for the construction and development of roads between various sugarcane producing centres and the factories of the assessee. The roads were the property of the Government and the assessee and other manufacturers had to contribute for the construction and development of such roads. There was no finding that the roads were to be altogether newly made or that the assessee would get an enduring benefit from those roads. On these facts the Supreme Courtld that the expenditure was incurred for the purpose of facilitating the running of its motor, vehicles for transportation of sugarcane to the factories and was, therefore, incurred for running the business or working it with a view to producing profits without the assessee gaining any advantage of enduring benefit to itself. It is manifest that the facts are distinguishable. The expenditure was allowed as revenue not because the assessee was liable to pay the same under a statute but mainly because the lands or the roads belonged to the Government and for construction and upkeep thereof the assessee was one of the contributors. The accent of the Supreme Court decision was on the facts that the assessee did not get any advantage of an enduring benefit to itself.
The Supreme Court in Travancore-Cochin Chemicals Ltd. v. CIT : 106ITR900(SC) had to deal with a similar question. In the above case the facts were that the assessee was engaged in the manufacture of chemicals and had to transport raw materials and the manufacture products to and from the factory which had no pucca roads. The assessee along with the two other public undertakings approached the Kerala Govt. for laying a new road to that area. The Government bore the cost of construction at 25% and the cost of acquisition of land. The balance of the cost of construction of roads was shared by the assessee and three other public undertaking. The assessee claimed it as revenue expenditure. The High Court on a reference held that the assessee had obtained an enduring advantage by the construction of the road and that, therefore, the amount contributed was capital expenditure. Affirming this decision the Supreme Court held that by having a new road constructed for the improvement of transport facilities the appellant acquired an enduring advantage for its business and the expenditure was of a capital nature. The Supreme Court considered its earlier decision in Lakshmjis Sugar Mills Ltd. : 82ITR376(SC) and distinguished the same on the peculiar facts of that case. The facts in Travancore Cochin Chemicals Ltd. : 106ITR900(SC) are comparable to the facts of the present case and the statement of law made therein will apply to this case. Admittedly, the assessee had constructed metal roads for the transport of night soil and compost and in view of the finding of fact recorded by the Tribunal that the assessee was the owner of that land, the conclusion was irresistible that the expenditure was incurred to gain an enduring benefit and the same was capital in nature.
Our answer to question No. 1, therefore, is that the Tribunal was justified in holding that the expenditure incurred by the assessee towards construction of the metal roads on its trenching grounds was capital and not revenue expenditure.
Question No. 2 arises out of the submission of the assessee that if expenditure on construction of the roads was capital in nature, the assessee should have been allowed depreciation under s. 32(1) of the I.T. Act. Section 32(1) refers to deduction of depreciation on building, machinery, plant of furniture owned by an assessee and used for the purposes of the business. Learned counsel for the assessee had contended before the AAC and the Appellate Tribunal that the roads should be treated as 'building' within the meaning of s. 32(1) of the Act. Before us this stance was changed and it was urged that the road should be treated as 'plant and machinery'. Learned counsel for the assessee cited an English decision by the House of Lords in IRC v Barclay Curle & Co. Ltd.  76 ITR 62 and suggested that even roads can be treated as 'plant' for the purposes of trade qualifying for depreciation. In the cited case, the assessee had constructed a dry dock for use in its trade of ship builders, ship repairers and marine engineers. For the purpose of construction of the dock a specially shaped new basin was excavated and the same was lined with concrete, installing valves, pumps, electricity generators and other machinery. The House of Lords held that the dock was 'plant' and the expenditure of depreciation. Clearly the expenditure incurred for the installation of a plant was treated as expenditure for 'plant and machinery' for purposes of depreciation allowance. The case has no application to the facts of this case because construction of metal roads for hauling compost cannot be considered as an expenditure on plant or machinery.
Our answer to question No. 2, therefore, is that on the facts and circumstances of the case, the assessee was not entitled to depreciation on the amount of the cost of construction of metal roads on the trenching grounds.
There shall be no order as to costs.