Enduring business advantage from factory relocation is capital expenditure, with no revenue deduction or depreciation allowed.

Expenditure on dismantling, transporting, refitting, and re-erecting a sugar factory at a new site was held to be capital in nature because the relocation secured a permanent and enduring business advantage, including flood immunity and improved access to sugarcane; it was therefore not deductible as revenue expenditure. Depreciation was also denied because the expenditure did not itself create a tangible depreciable asset, and the advantage obtained was intangible. The questions were answered against the assessee and in favour of the Revenue.

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Issues: (i) Whether the expenditure incurred in dismantling, transporting, refitting, and re-erecting the sugar factory at a new site was capital expenditure or revenue expenditure and deductible in computing business income. (ii) Whether depreciation could be allowed on the said expenditure.

Issue (i): Whether the expenditure incurred in dismantling, transporting, refitting, and re-erecting the sugar factory at a new site was capital expenditure or revenue expenditure and deductible in computing business income.

Analysis: The shift of the factory secured permanent and enduring advantages, including immunity from floods and better access to sugarcane. The expenditure was incurred to bring about an advantage of enduring benefit to the trade and therefore fell on the capital side. The principle applied was that expenditure made once and for all with a view to creating an enduring advantage is capital in character and not deductible as revenue.

Conclusion: The expenditure was capital expenditure and was not allowable as revenue deduction.

Issue (ii): Whether depreciation could be allowed on the said expenditure.

Analysis: Depreciation under the Act required a tangible asset capable of depreciation. Although the assessee obtained an enduring advantage by shifting the factory, no tangible asset was created by the expenditure itself. The advantage was intangible and did not attract depreciation allowance.

Conclusion: The assessee was not entitled to depreciation on the expenditure.

Final Conclusion: Both questions referred were answered against the assessee and the reference was decided in favour of the Revenue.

Ratio Decidendi: Expenditure incurred to secure an enduring business advantage by shifting and re-establishing a factory is capital in nature and cannot be deducted as revenue expenditure, and depreciation is not allowable unless the expenditure results in a tangible depreciable asset.

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