Enduring advantage makes factory road cost capital, but depreciation remains available for roads within factory premises.

An expenditure on constructing a new approach road in factory was treated as capital, because it conferred an enduring business advantage and was therefore not allowable as revenue expenditure. At the same time, roads and roadways laid within factory premises for movement of raw materials, finished goods, and workers were treated as part of the factory building and eligible for depreciation, as such assets are subject to wear from constant use. The Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950 was held valid and applicable on binding precedent, against the assessee and in favour of the revenue.

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Issues: (i) whether the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was valid and applicable to the assessee's case; (ii) whether the expenditure incurred for construction of a new approach road in the factory premises was allowable as revenue expenditure; (iii) whether depreciation was allowable in respect of the expenditure incurred for construction of the new approach roads in the factory premises.

Issue (i): whether the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was valid and applicable to the assessee's case.

Analysis: The validity of paragraph 2 of the Order was already concluded by the binding earlier decision of the Court, and the question stood covered against the assessee. The issue, therefore, did not require fresh examination on merits in this reference.

Conclusion: The Order was held to be valid and applicable, in favour of the revenue and against the assessee.

Issue (ii): whether the expenditure incurred for construction of a new approach road in the factory premises was allowable as revenue expenditure.

Analysis: Expenditure on a new road providing improved transport facilities was treated as resulting in an enduring advantage to the business. On that basis, the outlay was characterised as capital expenditure rather than a revenue outgoing.

Conclusion: The expenditure was held not to be allowable as revenue expenditure, against the assessee and in favour of the revenue.

Issue (iii): whether depreciation was allowable in respect of the expenditure incurred for construction of the new approach roads in the factory premises.

Analysis: Roads and roadways laid out within factory premises and used for movement of raw materials, finished products, and workers were treated as part of the factory buildings for the purpose of depreciation. Such assets were regarded as subject to deterioration by constant use and therefore eligible for allowance under the depreciation provision.

Conclusion: Depreciation was held allowable on the road expenditure, in favour of the assessee.

Final Conclusion: The reference was answered only on the issues that survived for adjudication, with the validity of the removal-of-difficulties order upheld, the road-construction expenditure denied as revenue expenditure, and depreciation allowed on the road assets.

Ratio Decidendi: Expenditure bringing into existence an enduring advantage is capital in nature, while roads or roadways within factory used as part of the business infrastructure may qualify as depreciable buildings for the purposes of the depreciation allowance.

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