Revenue treatment of road resurfacing and deduction computation after carried-forward losses and rebate set-off in business taxation.

Expenditure contributed toward black-topping an existing industrial estate approach road was held revenue in nature because it merely restored the surface of an already used road, did not create a new asset, and served the efficient carrying on of business. Relief under sections 80E/80-I had to be computed only after first setting off carried forward unabsorbed depreciation and development rebate, consistent with the later binding Supreme Court rule. The principal expenditure issue was therefore resolved in favour of the assessee, while the deduction-computation issue was resolved in favour of the revenue.

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Issues: (i) Whether contributions made towards black topping of the approach road in the industrial estate were revenue expenditure; (ii) Whether relief under sections 80E/80-I was to be allowed before set-off of earlier years' business loss and development rebate.

Issue (i): Whether contributions made towards black topping of the approach road in the industrial estate were revenue expenditure.

Analysis: The expenditure was not for laying out a new road or bringing into existence a new asset. It was only for redoing the surface of an already existing road to meet wear and tear caused by use and monsoon damage. Applying the distinction between capital and revenue outlay, and the principle that an advantage is capital only when it lies in the capital field and brings into existence an enduring asset or benefit, the contribution was treated as expenditure incurred for efficient carrying on of the business.

Conclusion: The amount was revenue expenditure and was allowable in favour of the assessee.

Issue (ii): Whether relief under sections 80E/80-I was to be allowed before set-off of earlier years' business loss and development rebate.

Analysis: The computation of deduction under sections 80E/80-I had to follow the binding rule that carried forward unabsorbed depreciation and development rebate are first deducted before arriving at the profits on which the statutory percentage is applied. Earlier contrary views could not prevail after the later Supreme Court ruling on the point.

Conclusion: The deduction was not allowable before set-off of earlier years' losses and development rebate, and the answer was in favour of the revenue.

Final Conclusion: The reference was answered for the assessees on the first issue and for the revenue on the second issue, resulting in a mixed outcome with the principal expenditure question decided in favour of the assessees and the deduction-computation question decided against them.

Ratio Decidendi: Expenditure on maintaining or redoing an existing road used for business operations is revenue in nature where no new asset or enduring capital advantage is created, and deductions under sections 80E/80-I must be computed only after first setting off carried forward unabsorbed depreciation and development rebate.

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