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India Tobacco Co. Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberSupreme Court Matter No. 87 of 1971
Judge
Reported in[1979]119ITR484(Cal)
ActsConstitution of India - Article 133
AppellantIndia Tobacco Co. Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateD. Pal and ;Pronab Pal, Advs.
Respondent AdvocateSuhas Sen and ;Ajit Sengupta, Advs.
Cases ReferredAtherton v. British Insulated
Excerpt:
- .....the workers' expenses for treatment at the hospital, the same would have merited deductions as revenue expenditure. from that point of view, it is true that by incurring this expenditure of rs. 50,000 the company was getting rid of the liability or the obligation to make recurring annual payments. if this was the only aspect of the matter, then on the principles discussed in the aforesaid decisions, it might have been possible to hold that the expenditure incurred, in the instant case, was a revenue expenditure. but, in this case, not only the company incurred this expenditure for getting rid of the obligation to make recurring annual expenses for meeting the treatment of its workers but also for getting an advantage or a privilege which indeed can be considered to be an asset for an.....
Judgment:

Sabyasachi Mukharji, J.

1. This is an application for a certificate for leave to appeal to the Supreme Court. The question with which we had to deal was as follows :

' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 50,000 was an admissible deduction under the provisions of Section 37(1) of the Income-tax Act, 1961 '

2. The question really was whether the sum of Rs. 50,000 paid by the assessee in that case was a revenue or capital expenditure. We referred to the observations of Lord Cave in the case of Atherton v. British Insulated & Helsby Cables Ltd. [1925] 10 TC 155; [1926] AC 205 (HL). We also referred to the decision of the Supreme Court in the case of Indian Molasses Co. (P.) Ltd. v. CIT : [1959]37ITR66(SC) . All these principles were reviewed by the Supreme Court in the case of Assam Bengal Cement Co. Ltd. v. CIT : [1955]27ITR34(SC) and there the Supreme Court laid down certain principles which are applicable for determining the question whether a particular expenditure was a capital or revenue. Whether a particular expenditure in a particular situation is a capital expenditure or a revenue one is a question of law. This is well settled. The principles applicable in determining whether an expenditure incurred is capital or revenue are also well settled by the decisions of the Supreme Court. Difficulties, however, very often appear in the application of these principles in the diversity of human situations that the assessee and the revenue have to confront with every day. But in determining the question whether an applicant is entitled to a certificate for leave to appeal to the Supreme Court it is necessary to find out whether any reconsideration of any principle is necessary by the Supreme Court or whether in a particular judgment any wrong principle or different principle has been applied. Misapplication of well-settled principles laid down by the Supreme Court, in any particular case, is not a ground for grant of a certificate for leave to appeal to the Supreme Court. This position also is well settled. Dr. Pal appearing for the assessee drew our attention to the judgment in the case delivered by us and he submitted that we had really departed from the well-settled principles laid down by the Supreme Court, at least in one aspect of the matter. He drew our attention to the following observations in the judgment (see : [1978]114ITR182(Cal) ) :

' It appears to us that, broadly speaking, the question should be considered from two aspects, namely, what is got by spending the money, the nature and type of the asset or the advantage or right that is obtained by the expenditure incurred, and, secondly, the nature and the manner of the payment made. It is the real nature and quality of payment that is important.'

3. According to Dr. Pal, the second aspect, to which we had referred, namely, the nature and manner of payment was a test not warranted by the tests laid down by the Supreme Court. But if the aforesaid observations are read in the context of the facts of this case where we had observed as follows (p. 196):

' It is true that if the annual sums had to be spent for meeting the workers' expenses for treatment at the hospital, the same would have merited deductions as revenue expenditure. From that point of view, it is true that by incurring this expenditure of Rs. 50,000 the company was getting rid of the liability or the obligation to make recurring annual payments. If this was the only aspect of the matter, then on the principles discussed in the aforesaid decisions, it might have been possible to hold that the expenditure incurred, in the instant case, was a revenue expenditure. But, in this case, not only the company incurred this expenditure for getting rid of the obligation to make recurring annual expenses for meeting the treatment of its workers but also for getting an advantage or a privilege which indeed can be considered to be an asset for an indefinite period to have its workers treated at no expense or at concessional expense. If this is an asset or a benefit then, and as it endures for a considerable length of time or for an indefinite time, it can certainly be considered to be an asset or advantage of enduring benefit, enduring in the sense in which fixed capital in modern times endures. If that is the position then by making this one lump sum payment, the assessee company not only got rid of a liability to make recurring annual payments for the treatment of its workers who are not covered by the State insurance scheme at the hospital of the Government but also obtained this advantage or privilege for an indefinite period. It is also to be emphasised that there is no finding that there was any incurred liability to the workers as such, clearance in respect of which was necessary either for carrying on of the business or for facilitating the business of the assessee-company. It has also to be borne in mind that this was an initial payment or payment to get the scheme started.'

4. Then it appears that the second test to which Dr. Pal had referred, was not a new test. Whether a payment was made in lump or in one instalment is also a relevant factor as has been emphasised by the Supreme Court in the several decisions and the tests laid down by the Supreme Court. Dr. Pal submitted that several other High Courts more or less in similar circumstances had taken a different view of the matter. For instance, Dr. Pal drew our attention to the decisions of the Orissa High Court in the case of CIT v. Rupsa Rice Mill : [1976]104ITR249(Orissa) , the Division Bench of the Orissa High Court had observed as follows :

' As found here by the Tribunal, the primary health centre was the property of the Government. Assessee made a substantial contribution to meet the cost of erection in consideration of the fact that a health centre located near the factory premises would provide treatment to the ailing workmen. Under the State Employees' Insurance Act the assessee had obligation to maintain a hospital or meet the expenses on treatment. Taking an overall picture of the matter, the Tribunal recorded the finding that, in the facts of the case, it was business expenditure.'

5. Dr. Pal also submitted that the Bombay and Madras High Courts had also held on the facts of the cases before them that the expenditure in question, which was of similar nature, was revenue expenditure. As we have indicated before, the application of the principles laid down by the Supreme Court will be different in different contexts and the different High Courts in the particular facts and circumstances of the case would apply such principles in the manner the courts consider fit and proper in the particular case. Even assuming that there was some misapplication by this court of the principles laid down by the Supreme Court that, in our opinion, is not a ground for grant of a certificate for leave to appeal to the Supreme Court.

6. For the reasons aforesaid, we are unable to accept the contention that we have laid down any different test, different from those laid down by the House of Lords and approved by the Supreme Court in several decisions, to which we have referred, in the judgment under consideration, and, therefore, we are unable to hold that this is a question which requires consideration by the Supreme Court. We, therefore, decline to grant a certificate as asked for.

7. The application is rejected. There will, however, be no order as to costs.

Sudhindra Mohan Guha, J.

8. I agree.


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