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of <h1>Court rules stowing expenses as revenue, not capital, expense</h1> <h3>COMMISSIONER OF INCOME-TAX, BIHAR &ORISSA Versus KIRKEND COAL COMPANY.</h3> COMMISSIONER OF INCOME-TAX, BIHAR &ORISSA Versus KIRKEND COAL COMPANY. - [1966] 60 ITR 537 (Pat) Issues Involved:1. Whether the sum of Rs. 21,911 claimed as stowing expenses is capital expense or revenue expense.Detailed Analysis:Issue 1: Whether the sum of Rs. 21,911 claimed as stowing expenses is capital expense or revenue expense.The assessee, a coal mining firm, incurred Rs. 21,911 in stowing operations during the accounting year ending December 31, 1956. The stowing was mandated by the Department of Mines as a prerequisite for working the colliery, making it a business necessity. The assessee claimed this expenditure as a revenue expense under section 10(2)(xv) of the Income-tax Act, 1922. The Income-tax Officer and the Appellate Assistant Commissioner classified it as capital expenditure, but the Income-tax Appellate Tribunal reversed this, treating it as revenue expenditure necessary for coal extraction.The High Court considered the principles laid out in Atherton v. British Insulated and Helsby Cables Ltd., where Viscount Cave L.C. stated that an expenditure might be capital if it brings into existence an asset or advantage for the enduring benefit of the trade. The department argued that the expenditure met this criterion as it allowed continued coal extraction for several years. They also cited the Supreme Court decision in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax, which applied the same test.The High Court noted that the determination of whether an expenditure is capital or revenue involves a mixed question of law and fact. The Tribunal had applied the correct test and concluded that the expenditure was a revenue expense. The High Court agreed, stating that the stowing was an operational measure integral to the profit-earning process, not aimed at creating an enduring benefit.The High Court referenced several cases, including Tata Hydro-Electric Agencies Ltd. v. Commissioner of Income-tax, which emphasized that operational expenses necessary for the profit-earning process are revenue expenses. The High Court found that the stowing expenditure did not aim to create an enduring asset but was essential for the business's operation.The High Court distinguished the present case from others cited by the department, such as Atherton v. British Insulated and Helsby Cables Ltd., where the expenditure aimed at creating a pension fund, and Bean v. Doncaster Amalgamated Collieries Ltd., where the expenditure aimed at counteracting subsidence. These cases involved expenditures for enduring benefits, unlike the operational nature of the stowing expenses in the present case.The High Court concluded that the stowing expenditure was a revenue expense, deductible under section 10(2)(xv) of the Income-tax Act, 1922. The question was answered in favor of the assessee, with costs awarded to them.
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