1991 (3) TMI 115 - HC - Income Tax

Court Determines Nature of Expenditure: Revenue vs. Capital Classification

The court ruled in favor of the assessee on the first issue, determining the expenditure for the temporary water supply connection as revenue in nature. ... Penalty, Wealth Tax Issues Involved:1. Whether the premium of Rs. 4,50,000 paid by the assessee-company to the Maharashtra Industrial Development Corporation for temporary water supply connection was expenditure of a revenue nature.2. Whether the contribution of Rs. 1,56,800 paid by the assessee-company to the Maharashtra Housing Board towards the building of houses for its employees was expenditure of a revenue nature.Summary:Issue 1: Premium Paid for Temporary Water Supply ConnectionThe assessee-company entered into an agreement with the Maharashtra Industrial Development Corporation (MIDC) for a temporary water supply connection, paying Rs. 4,50,000 as capital contribution charges. The Income-tax Officer and the Appellate Assistant Commissioner treated this amount as capital expenditure. However, the Income-tax Appellate Tribunal concluded that the expenditure was of a revenue nature, as it was a premium for obtaining water supply and not for acquiring a capital asset. The Tribunal emphasized that the pipeline belonged to MIDC and continued to do so. The Tribunal's decision was based on the principle that the expenditure did not provide an enduring benefit to the assessee. The High Court upheld the Tribunal's view, stating that the agreement was temporary and did not confer any enduring advantage to the assessee. The court referenced several judgments, including Gotan Lime Syndicate v. CIT and CIT v. Excel Industries Ltd., to support its decision. The court answered the first question in the affirmative, favoring the assessee.Issue 2: Contribution to Maharashtra Housing BoardThe assessee paid Rs. 1,56,800 to the Maharashtra Housing Board for constructing tenements for its employees. The ownership of these tenements vested in the State Government or the Housing Boards, but the assessee had the right to allot 15% of the houses out of turn to its workers. The Income-tax Officer and the Appellate Assistant Commissioner treated this amount as capital expenditure. The High Court referred to its earlier judgment in Cooper Engineering Ltd. v. CIT, where it was held that similar contributions conferred an enduring advantage to the assessee, thus constituting capital expenditure. The court distinguished this case from CIT v. Hingir Rampur Coal Co. Ltd., where the agreement was for a limited period. The court also referenced CIT v. T. V. Sundaram Iyengar and Sons (P.) Ltd., noting that the expenditure in that case was incurred as a matter of commercial expediency, which was not the situation in the present case. The court answered the second question in the negative, favoring the Revenue.Conclusion:The court ruled in favor of the assessee on the first issue, determining the expenditure to be of a revenue nature. On the second issue, the court ruled in favor of the Revenue, classifying the expenditure as capital in nature. There was no order as to the costs of the reference.