1. This consolidated reference under Section 256(1) of the I.T. Act, 1961, relates to assessment years 1965-66, 1966-67 and 1968-69, the correspondingprevious years ending respectively on the 30th September, of the calendar years 1964, 1965 and 1967. The facts found and/or admitted in the reference are as follows :
Indian Explosives Ltd., the assessee, carries on business of manufacture of explosives. Its factory is situated at Gomiah, in the district of Hazaribagh within the State of Bihar. For the convenience of executives who had to travel between Gomiah and Calcutta frequently in connection with the assessee's business, the assessee decided to construct an airstrip in the neighbourhood of Gomiah and purchase an aircraft to be used for such journeys. The assessee entered into an agreement in writing dated 3rd May, 1968, with the National Coal Development Corporation (hereinafter referred to as the Corporation), under which a licence and/or permission was granted to the assessee in respect of a plot of land at Gomiah belonging to the Corporation measuring about 18'25 acres on, inter alia, the following terms and conditions:
(a) The said licence and/or permission would be for a term of 10 years commencing from the 1st May, 1963.
(b) The assessee would pay an annual licence fee of Rs. 4,500 to the Corporation during the said term.
(c) The assessee would construct on the said land at its cost an airstrip and buildings ancillary thereto which would become and remain the property of the Corporation.
(d) The assessee would be entitled to use, occupy and enjoy the said land and the airstrip during the said term.
(e) In the event of the said land or any part thereof being acquired or requisitioned during the term, the licence would determine and the assessee would be entitled to receive and keep such compensation as it may be entitled to in law subject to the condition that the Corporation would be entitled to receive compensation for the land.
(f) On a notice being given before the expiry of the term and subject to due observance and performance of the covenants and conditions by the assessee, the Corporation would grant a further licence to the assessee for another term of ten years on the same terms and conditions except that licence fee payable would be redetermined.
2. Pursuant to the said agreement the assessee constructed an airstrip in the said land incurring expenditure of Rs. 3,76,542, Rs. 17,315 and Rs. 32,082 in the respective assessment years 1965-66, 1966-67 and 1968-69. The said expenditure was debited in the assessee's miscellaneous expenses account and written off successively in its profit and loss account as follows:
Assessment year AmountRs.1965-66 3,76,5421966-67 41,1181967-68 39,3841968-69 46,151
3. The above amounts were claimed by the assessee to be allowable deductions in the said assessment years. The ITO in the proceedings before him held that the construction of the airstrip conferred on the assessee a benefit of an enduring nature and was a capital asset and, therefore, no part of the expenditure was revenue expenditure. He disallowed the claim for deduction.
4. In the assessment year 1968-69, the ITO also disallowed another amount of Rs. 2,82,408 paid by the assessee on account of interest on an overdraft account with the Central Bank of India. The ITO found that income-tax had been paid from this account. He also found that the total payments out of this account including taxes exceeded the receipts therein in most of the months and at the end of each month the account had a debit balance. The assessee contended that the taxes were paid out of the receipts and that the amounts received on overdraft were not utilised for payment of taxes. The ITO held that it was not established that the receipts were utilised only for payment of taxes and not for liquidation of the debit balance in the account. He concluded that the receipts in the account had been used proportionately to liquidate the overdraft and other liabilities as also for payment of taxes. As payment of the taxes could not be treated as business expenses, the ITO disallowed a proportionate part of the interest on the overdraft calculated at Rs. 2,82,408.
5. The assessee preferred an appeal against the assessment to the AAC. The AAC held that the expenses incurred for construction of the airstrip were capital in nature, as the assessee had obtained thereby a benefit of an enduring nature, and upheld the order of the ITO. On the disallowance of the interest paid on the overdraft, the Appellate Commissioner held that cumulative debit balance in the account in each of the months showed that the overdraft was partly utilised for the purpose of payment of taxes. He held that the entire interest paid was not allowable as deduction.
6. The assessee preferred a further appeal before the Income-tax Appellate Tribunal. It was contended in the appeal by the assessee that the construction of the airstrip had facilitated the running of the business of the assessee and that the expenditure was, therefore, incurred out of business necessity or commercial expediency. It was also contended that such expenditure or outgoing was closely related to the carrying on or conduct of the business and must be held as a part of the profit-earning process of the assessee. It was submitted further that in terms of the agreement the entire airstrip had to be handed over to the Corporation within a period of 10 years and, therefore, the assessee could not be deemed to have received any enduring benefit or a benefit of a permanent character. The Revenue contended to the contrary.
7. The Tribunal held that the expenditure incurred was no doubt related to the carrying on or conduct of the assessee's business but the decisive factor would be whether such expenditure was also for acquisition of an asset or a right of a permanent character. Following the decision of the Supreme Court in Assam Bengal Cement Co. Ltd. v. CIT : 27ITR34(SC) , the Tribunal held that though the assessee did not acquire any permanent asset but it did acquire a right of a permanent character of the advantage of a benefit enduring for 10 years. This benefit was not transient or ephemeral but enduring.
8. On the disallowance of the said sum of Rs. 2,82,408 the assessee contended before the Tribunal that taxes had actually been paid out of the collection of fund and no overdraft was utilised for that purpose. In support of such contention a chart was placed before the Tribunal showing the opening and closing balances of the said account, the collections made and the taxes and other payments were made on different dates during the year. The Tribunal found that the taxes were not actually paid out of the collections of the day on which the payments were made. The collections of most of the days were first utilised to reduce the debit balance of the overdraft account. Subsequent payment of tax merely increased the debit balance. Part of the taxes could be said to have been paid out of the collections on certain days but there being no challenge to the computation of the ITO as to the proportion the same was upheld.
9. The assessee further contended that interest paid was an allowable deduction under Section 36 of the I.T. Act, 1961, being interest paid on capital borrowed for the purpose of business which included the payment of income-tax on the income of the business. On the authority of a decision of this court in Mannalal Ratanlal v. CIT : 58ITR84(Cal) , the Tribunal held that the assessee was not entitled to claim any part of the interest disallowed by the ITO.
10. At the instance of the assessee, the Tribunal has drawn up a statement of case and referred to this court the following questions of law:
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee got an enduring benefit by constructing the airstrip and, therefore, the expenditure of Rs. 3,76,542 and Rs. 17,315 incurred in the assessment years 1965-66 and 1966-67, respectively, was a capital expenditure ?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the disallowance of interest paid by the assessee to the extent of Rs. 2,82,408 ?'
11. On the first question, the learned advocate for the assessee contended at the hearing that the Tribunal had found as a fact that the assessee incurred the expenditure for construction of the airstrip with a view to run its business smoothly. This finding has now become final and concluded the issue. The conclusion of the Tribunal that the assessee had obtained an enduring benefit and, therefore, the said expenditure was a capital expenditure was erroneous as the Tribunal proceeded solely on the basis of the result of the expenditure and failed to consider its purpose. In support of his contentions learned advocate for the assessee cited the following decisions :
Anglo-Persian Oil Co. Ltd. v. Dale  16 TC 253 (CA). In this case Romer L.J. considered the principles laid down by Viscount Cave in Atherton v. British Insulated and Helsby Cables Ltd.  10 TC 155 (HL), as follows (p. 274): 'But when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital.'
12. Romer L.J. observed as follows (p. 274):
'It should be remembered, in connection with this passage, that the expenditure is to be attributed to capital if it be made with a view to bringing an asset or advantage into existence. It is not necessary that it should have that result. It is also to be observed that the asset or advantage is to be for the 'enduring' benefit of the trade. '
13. Learned advocate also cited Assam-Bengal Cement Co. Ltd. v. CIT : 27ITR34(SC) . The assessee in this case acquired from the Government of Assam a lease of limestone quarries for twenty years. Apart from rents and royalties the assessee had to pay a sum of Rs. 5,000 per year during the entire period of the lease and Rs. 35,000 per year for five years as protection fee for which the Government undertook not to grant any person any lease, permit or prospecting licence for limestone in the quarries of the entire district and in particular for one group of quarries except on condition that limestone if quarried should be used only for the manufacture of cement.
14. The assessee claimed deduction of the said sums of Rs. 5,000 and Rs. 35,000 under Section 10(2)(xv) of the Indian I.T. Act, 1922.
15. The matter was finally disposed of in the Supreme Court. The Supreme Court laid down that one of the principles of distinction between a capital and revenue expenditure was that expenditure should be attributed to capital when made once and for all with a view to bringing into existence an asset or an advantage for the enduring benefit of the business or trade.
16. On the facts, the Supreme Court held that though the protection fees were expenditure recurring annually and spread over the entire period of lease or a part thereof the asset which the assessee acquired thereby was the right to carry on its business unfettered from any competition from outsiders within the area. This was in the nature of a capital asset. The protection covered the business as a whole and the entire capital asset appreciated as a result and became more profit earning. This was an enduring advantage.
17. The following observation of the Supreme Court was relied on (p. 45 of 27 ITR):
'The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure.'
18. Learned advocate for the assessee also cited Empire Jute Co. Ltd. v. CIT : 124ITR1(SC) . In this case, the assessee-company carried on the business of manufacture of jute. The members of the Indian Jute Mills Association of which the assessee was also a member entered into an agreement between themselves restricting the number of hours per week during which the mills would be entitled to work their looms (known as loom hours). The agreement provided that the members would be entitled to transfer in part or wholly their allotment of working hours per week to the other member or members.
19. The assessee purchased loom hours from four other mills during the relevant accounting year and claimed deduction of the expenditure incurred in the computation of its income.
20. On a reference to this court, following the decision of the Supreme Court in CIT v. Maheswari Devi Jute Mitts Ltd. : 57ITR36(SC) , it was held that the expenditure for purchase of loom hours was in the nature of expenditure for capital and not deductible.
21. On a further appeal, it was noted by the Supreme Court that in Maheshwari Devi Jute Mills : 57ITR36(SC) , the question was whether an amount received on sale of loom hours was in the nature of a capital receipt or a revenue receipt and observed, that capital receipt in the hands of the payee may not necessarily be capital expenditure in relation to the payer and that the fact that a payment constituted capital receipt in the hands of the recipient was not material in determining whether the payment is revenue or capital disbursement qua the payer. The Supreme Court further observed as follows (p. 12 of 124 ITR) :
'Now it is true that if disbursement is made for acquisition of a source of profit or income, it would ordinarily, in the absence of any other countervailing circumstances, be in the nature of capital expenditure. But we fail to see how it can at all be said in the present case that the assessee acquired a source of profit or income when it purchased loom hours. The source of profit or income was the profit-making apparatus and this remained untouched and unaltered. There was no enlargement of the permanent structure of which the income would be the produce or fruit. What the assessee acquired was merely an advantage in the nature of relaxation of restriction on working hours imposed by the working time agreement so that the assessee could operate its profit-earning structure for a longer number of hours, Undoubtedly, the profit-earning structure of the assessee was enabled to produce more goods, but that was not because of any addition or augmentation in the profit-making structure, but because the profit-making structure could be operated for longer working hours. The expenditure incurred for the purpose was primarily and essentially related to the operation or working of the looms which constituted the profit-earning apparatus of the assessee. It was an expenditure for operating or working the looms for longer working hours with a view to producing a larger quantity of goods and earning more income and was, therefore, in the nature of revenue expenditure.'
22. Learned advocate for the assessee also cited-
(a) CIT v. Hindustan Motors Ltd. : 68ITR301(Cal) .
(b) Lakshmiji Sugar Mills Co. (P.) Ltd. v. CIT : 82ITR376(SC) .
(c) CIT v. Associated Cement Companies Ltd. : 96ITR650(Bom) .
23. Learned advocate for the Revenue contended to the contrary and submitted that the Tribunal has found that the expenditure was also for the acquisition of an asset or a right of a permanent character and that the assessee in fact obtained an advantage which was of an enduring benefit to the assessee. Such finding was conclusive. In support learned advocate for the Revenue cited a number of cases which are noted hereafter as a useful collection of case-law on the point-
(a) Ounsworth v. Vickers  6 TC 671 (HL).
(b) Margrett v. Lowestoft Water & Gas Co.  19 TC 481 (KB).
(c) Norman v. Golder  26 TC 293 (CA).
(d) Avon Beach & Cafe Ltd. v. Stewart  31 TC 487.
(e) Strick v. Regent Oil Co. Ltd.  43 TC 1 (HL).
(f) Pitt v. Castle Hill Warehousing Co. Ltd. (1974) 49 TC 638 (Ch. D).
(g) Sitalpur Sugar Works Ltd. v. CIT : 49ITR160(SC) .
(h) Ganesh Sugar Mills Ltd. v. CIT : 73ITR395(Cal) .
(i) R.B. Seth Moolchand Suganchand v. CIT : 86ITR647(SC) .
(j) CIT v. North Dhemo Coal Co. Ltd. : 106ITR592(Cal) .
24. He also cited the following decisions which we note in particular :
(a) Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT : 56ITR52(SC) . This decision was cited for the following observations of the Supreme Court (at p. 59):
'Whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or of a right of a permanent character, the possession of which is a condition of the carrying on of the, business, the expenditure may be regarded as revenue expenditure.' (b) CIT v. Coal Shipments P. Ltd. : 82ITR902(SC) . Thisdecision was cited for the observations of the Supreme Court as follows (atp. 910):' 'Although we agree that payment made to ward off competition in business to a rival dealer would constitute capital expenditure if the object of making that payment is to derive an advantage by eliminating the competition over some length of time, the same result would not follow if there is no certainty of the duration of the advantage and the same can be put to an end at any time. How long the period of contemplated advantage should be in order to constitute enduring benefit would depend upon the circumstances and the facts of each individual case.'
25. On the second question, learned advocate for the assessee contended that the overdraft was for the purpose of the carrying on of the business of the assessee and in fact no money was borrowed by the assessee for payment of income-tax. The assessee, it was submitted, at all material times had sufficient resources to pay taxes. It was found as a fact that all receipts of the assessee during the relevant accounting year were deposited in the overdraft account and all payments were made from the account. The basic inference of the Tribunal that tax was paid out of the borrowed money was erroneous in law and, therefore, the answer to the second question was self-evident. It was also submitted that, in any event, expenditure incurred by the assessee by way of interest for payment of its income-tax was business expenditure and ought to be deducted. In support of the above contentions learned advocate cited a decision of a Division Bench of this court in Woolcombers of India Ltd. v. CIT : 134ITR219(Cal) . In this case, a few days before the end of the assessee's accounting year, the balance in its overdraft account was in debit. The assessee paid advance tax from this account which increased the debit at the end of the accounting year. In computing the income of the assessee, it was held by the ITO that payment of advance tax was not a business expenditure and disallowed interest payable by the assessee on the said overdraft account proportionately. This decision was affirmed by the AAC and the Tribunal. On a reference, the assessee contended that where the total profits of the assessee's business was sufficient to cover the payment of advance tax during the relevant accounting year, if the same was paid from an account which included the amount of profit as well as the overdraft taken for the purpose of the business, the presumption would be that the tax was paid out of the profit and not on overdraft credit. ' The total amount of the profit deposited in the account having exceeded the liability for tax, it should be held that the tax was paid out of the profit. It was submitted by the Revenue that this contention was not raised before the Tribunal and could not be agitated for the first time in a reference.
26. A Division Bench of this court held that the assessee having contended before the I.T. authorities that its profit was sufficient to, meet its advance tax liability and the question referred being wide enough, it was open to the assessee to raise the question before the High Court. Following a decision of the Madras High Court in CIT v. Nadimuthu Pillai : 8ITR249(Mad) , an English decision Fellowes-Gordon v. IRC  19 TC 683 (C Sess) and a decision of this court in CIT v. Tingri Tea Co. Ltd. : 79ITR294(Cal) , it was held that the profit being in fact sufficient to meet the advance tax liability and the entire profit having been deposited in the overdraft account the interest on the overdraft must be fully allowed as a deduction.
27. The Division Bench observed as follows (p. 227 of 134 ITR):
'It should be presumed that in its essence and true character, the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business.'
28. The Division Bench declined to express any opinion on the question whether the interest paid on the money borrowed for payment of income-tax was business expenditure.
29. The above decision was subsequently followed by the same Bench in Reckitt & Colman of India Ltd. v. CIT : 135ITR698(Cal) .
30. Learned advocate for the Revenue submitted in reply that the presumption drawn in Woolcombers of India Ltd. v. CIT : 134ITR219(Cal) , was necessarily a presumption of fact and at no stage below, the assessee had sought to draw such a presumption. On the contrary the Tribunal had found as a fact that taxes were not actually paid out of the collections of the day which were first utilised to reduce the debit balance. Payment of tax subsequent thereto increased the debit balance except on certain occasions. He submitted that if a presumption was drawn at this stage it would amount to finding of a new fact in the reference. This the High Court was not entitled to do.
31. From the facts found it appears that under the agreement dated the 3rd May, 1968, the assessee obtained a licence or permission for ten years with option for a further term of ten years to use, occupy and enjoy the plot of land and the airstrip with the buildings constructed thereon. It cannot be disputed that, as a result, benefit or advantage certain to endure for ten years and likely to endure for twenty years came into existence. This has been found as a fact. It is also the finding of the Tribunal that such an expenditure was related to the carrying on, or conduct of, the business of the assessee. The conclusion must follow that the assessee incurred expenditure for the acquisition of an asset considered to be a source of profit or income. In any event, there was an accretion to or augmentation of the profit-making structure of the assessee as a result of the aforesaid expenditure. The whole of the capital asset or permanent structure of the assessee's business appreciated and became more profit-yielding. In our view, the expenditure satisfies all the tests of expenditure of a capital nature. The facts before us are entirely different and distinguishable from the special facts before the Supreme Court in Empire Jute Co. Ltd. v. CIT : 124ITR1(SC) . For the above reasons we answer the first question in the affirmative and in favour of the Revenue.
32. On the second question we have considered the submissions of learned counsel for the Revenue which may not be without substance. But so far as this court in concerned, the question seems to be concluded by Woolcombers of India Ltd. v. CIT : 134ITR219(Cal) and Reckitt & Colman of India Ltd. v. CIT : 135ITR698(Cal) .
33. In this connection we may note two other decisions which in our view are of some relevance to the point in issue.
(a) Sterling Trust Ltd. v. IRC  12 TC 868 (CA). In this case the profits of an assessee, an investment company, consisted of (1) profits assessable to Corporation profits tax in its hands and (2) dividends received from other companies liable to Corporation profits tax and not so taxable in the hands of the assessee. Up to a time the total income of the company was deposited into one banking account and out of that mixed fund its management expenses and interest on debentures were paid. Later, a separate banking account was opened and the profits under the two heads were segregated. The assessee contended that the whole of its debenture interest should be recorded as having been actually paid out of its profits which were assessable in its hands to the Corporation profits tax. The question was finally disposed in the High Court of Justice where it was held that the assessee was entitled to treat the debenture interest as having been paid out of the profits assessable to Corporation profits tax in the company's own hands even when the entire profits of the company were kept in one account. A decision of the House of Lords in Edinburgh Life Assurance Co. v. Lord Advocate  5 TC 472 (HL), was followed and the principles laid down therein were noted as follows .(p. 881):
' ......where you are considering the business of a company which hastwo sources of income, the one subjected to tax and the other not, you are entitled to assume and deem that it has paid the money that it ought to pay according to the most business like way of appropriating the revenue to the expenses; further, that even though that has not been done in fact by any separate allocation of the money, as was done here in the later years by putting it at a special bank, still you are entitled to treat the money as having been paid out of the fund which is most favourable to the company, which is, in this case, the taxpayer.' (b) CIT v. Ashoka Charity Trust : 135ITR556(Cal) . The assessee in this case, a charitable trust, received voluntary contributions from non-charitable institutions which were deposited in a common fund where other income of the assessee from trust property, etc., were also deposited. Out of this composite fund all expenses were met. While computing the aggregate income for the purpose of Section 11 of the I.T. Act, 1961, the voluntary contributions were not taken into account and the rest of the income was set off against the entire expenditure incurred in respect of which exemption was claimed under Section 12. On this fact it was held by a Division Bench of this court approving Sterling Trust Ltd.  12 TC 868 (CA), that though paid out of a common fund, the expenditure incurred should be considered to have been made out of the income derived from property held under the trust. There was no provision for apportioning the expenditure between the different heads.
34. We are not inclined to take view different from that already expressed by this court earlier. We also do not express any opinion on the question whether interest paid on money borrowed for payment of income-tax is business expenditure. Accordingly, we answer the second question in the negative and in favour of the assessee. Inasmuch as both the Revenue and the assessee have succeeded partly in this reference, each party will pay and bear its own costs.
35. I agree.