TaxTMI 
TaxTMI 
TaxTMI 
1982 (8) TMI 10
X X X X Extracts X X X X
X X X X Extracts X X X X
....n (hereinafter referred to as the Corporation), under which a licence and/or permission was granted to the assessee in respect of a plot of land at Gomiah belonging to the Corporation measuring about 18.25 acres on, inter alia, the following terms and conditions: (a) The said licence and/or permission would be for a term of 10 years commencing from the 1st May, 1963. (b) The assessee would pay an annual licence fee of Rs. 4,500 to the Corporation during the said term. (c) The assessee would construct on the said land at its cost an airstrip and buildings ancillary thereto which would become and remain the property of the Corporation. (d) The assessee would be entitled to use, occupy and enjoy the said land and the airstrip during the said term. (e) In the event of the said land or any part thereof being acquired or requisitioned during the term, the licence would determine and the assessee would be entitled to receive and keep such compensation as it may be entitled to in law subject to the condition that the Corporation would be entitled to receive compensation for the land. (f) On a notice being given before the expiry of the term and subject to due observance and per....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the debit balance in the account. He concluded that the receipts in the account had been used proportionately to liquidate the overdraft and other liabilities as also for payment of taxes. As payment of the taxes could not be treated as business expenses, the ITO disallowed a proportionate part of the interest on the overdraft calculated at Rs. 2,82,408. The assessee preferred an appeal against the assessment to the AAC. The AAC held that the expenses incurred for construction of the airstrip were capital in nature, as the assessee had obtained thereby a benefit of an enduring nature, and upheld the order of the ITO. On the disallowance of the interest paid on the, overdraft, the Appellate Commissioner held that cumulative debit balance in the account in each of the months showed that the overdraft was partly utilised for the purpose of payment of taxes. He held that the entire interest paid was not allowable as deduction. The assessee preferred a further appeal before the Income-tax Appellate Tribunal. It was contended in the appeal by the assessee that the construction of the airstrip had facilitated the running of the business of the assessee and that the expenditure was, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....court in Mannalal Ratanlal v. CIT [1965] 58 ITR 84, the Tribunal held that the assessee was not entitled to claim any part of the interest disallowed by the ITO. At the instance of the assessee, the Tribunal has drawn up a statement of case and referred to this court the following questions of law: " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee got an enduring benefit by constructing the airstrip and, therefore, the expenditure of Rs. 3,76,542 and Rs. 17,315 incurred in the assessment years 1965-66 and 1966-67, respectively, was a capital expenditure, ? Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the disallowance of interest paid by the assessee to the extent of Rs. 2,82,408 ? " On the first question, the learned advocate for the assessee contended at the hearing that the Tribunal had found as a fact that the assessee incurred the expenditure for construction of the airstrip with a view to run its business smoothly. This finding has now become final and concluded the issue. The conclusion of the Tribunal that the assessee had obtained an enduring benefit and, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e enduring benefit of the business or trade. On the facts, the Supreme Court held that though the protection fees were expenditure recurring annually and spread over the entire period of lease or a part thereof the asset which the assessee acquired thereby was the right to carry on its business unfettered from any competition from outsiders within the area. This was in the nature of a capital asset. The protection covered the business as a whole and the entire capital asset appreciated as a result and became more profit earning. This was an enduring advantage. The following observation of the Supreme Court was relied on : " The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. " Learned advocate for the assessee also cited Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC). In this case, the assessee-company carried on the business of manufacture of jute. The members of the Indian jute Mills Association of which the assessee was, also a member entered into an agreement between themselves restricting the number of hours per week during which the mills would be entitled to work their loo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e operation or working of the looms which constituted the profit-earning apparatus of the assessee. It Was an expenditure for operating or working the looms for longer working hours with a view to producing a larger quantity of goods and earning more income and was, therefore, in the nature of revenue expenditure." Learned advocate for the assessee also cited (a) CIT v. Hindusthan Motors Ltd. [1968] 68 ITR 301 (Cal). (b) Lakshmiji Sugar Mills Co. (P.) Ltd. v. CIT [1971] 82 ITR 376 (SC). (e) CIT v. Associated Cement Companies Ltd. [1974] 96 ITR 650 (Bom). Learned advocate for the Revenue contended to the contrary and submitted that the Tribunal has found that the expenditure was also for the acquisition of an asset or a right of a permanent character and that the assessee in fact obtained an advantage which was of an enduring benefit to the assessee. Such finding was conclusive. In support learned advocate for the Revenue cited a number of cases which are noted hereafter as a useful collection of case-law on the point (a) Ounsworth v. Vickers [1915] 6 TC 671 (HL). (b) Margrett v. Lowestoft Water & Gas Co. [1935] 19 TC 481 (KB). (c) Norman v. Golder [1944] 26 TC 293 (CA). (d)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was found as a fact that all receipts of the assessee during the relevant accounting year were deposited in the overdraft account and all payments were made from the account. The basic inference of the Tribunal that tax was paid out of the borrowed money was erroneous in law and, therefore, the answer to the second question was self-evident. It was also submitted that, in any event, expenditure incurred by the assessee by way of interest for payment of its income-tax was business expenditure and ought to be deducted. In support of the above contentions learned advocate cited a decision of Division Bench of this court in Woolcombers of India Ltd. v. CIT [1982] 134 ITR 219. In this case, a few days before the end of the assessee's accounting year, the balance in its overdraft account was in debit. The assessee paid advance tax from this account which increased the debit at the end of the accounting year. In computing the income of the assessee, it was held by the ITO that payment of advance tax was not a business expenditure and disallowed interest payable by the assessee on the said overdraft account proportionately. This decision was affirmed by the AAC and the Tribunal. On a refer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ebit balance. Payment of tax subsequent thereto increased the debit balance except on certain occasions. He submitted that if a presumption was drawn at this stage it would amount to finding of a new fact in the reference. This the High Court was not entitled to do. From the facts found it appears that under the agreement dated the 3rd May, 1968, the assessee obtained a licence or permission for ten years with option for a further term of ten years to use, occupy and enjoy the plot of land and the airstrip with the buildings constructed thereon. It cannot be disputed that, as a result, benefit or advantage certain to endure for ten years and likely to endure for twenty years came into existence. This has been found as a fact. It is also the finding of the Tribunal that such an expenditure was related to the carrying on, or conduct of, the business of the assessee. The conclusion must follow that the assessee incurred expenditure for the acquisition of an asset considered to be a source of profit or income. In any event, there was an accretion to or augmentation of the profit-making structure of the assessee as a result of the aforesaid expenditure. The whole of the capital asset o....