TaxTMI 
TaxTMI 
1980 (7) TMI 77
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....the amount brought forward from the earlier years, both constituting the amount of depreciation allowance for the current year, and, consequently, upholding the calculation of the Incometax Officer ? " Mr. Patel appearing for the assessee has not pressed question No. (2) and, therefore, we are not called upon to answer that question and we will dispose of that question as not pressed. The assessment year under consideration is 1967-68, the previous year of account being the financial year 1966-67. The assessee is a limited company engaged in the manufacture of Vitamin " C " and other chemicals and pharmaceuticals in the relevant year, the assessee-company claimed deduction of Rs. 58,062 being the amount paid as its share for the cable laying charges which were recovered by the Gujarat Electricity Board from M/s. Sarabhai Chemicals in whose compound the assessee-company is located. It also claimed deduction on account of entertainment expenditure of the sum of Rs. 12,150, but question No. (2) which is not pressed pertains to the amount of entertainment expenditure and we are no longer concerned with that aspect of the case. The claim for deduction on account of cable laying ch....
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....1, 1971, onwards it increased to 1610 KVA. On these facts before the Tribunal, it was contended by the assessee that the expenditure which the assessee incurred was on the ground of commercial expediency for securing additional increased supply of electric power and that this was an integral part of the assessee's business and did not result in any expenditure of a capital nature. The Tribunal rejected the assessee's contention that it was not necessary in every case if an enduring advantage was obtained that the expenditure for securing it must be treated as capital expenditure or that any asset be brought into existence by such expenditure, which asset should be owned by the assessee. The Tribunal rejected the assessee's claim for deduction of the amount paid by it as its share towards the cost of cable laying charges as revenue expenditure. Thereafter, at the instance of the assessee, the two questions set out hereinabove have been referred to us for our opinion. It must be pointed out that certain facts are not in dispute before us. Prior to February 1, 1967, the supply was being obtained from the Baroda Municipality but the Baroda Municipality itself was distributing the el....
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....loom hours " from four other mills for the aggregate sum of Rs. 2,03,255 during the previous year relevant to the assessment year under consideration before the Supreme Court. This amount was claimed as revenue expenditure and on these facts the Supreme Court held that the allotment of loom hours, under the working time agreement, to different mill constituted not a right conferred but merely a contractual restriction on the right of every mill to work its looms to their full capacity, and purchase of loom hours by a mill had, therefore, the effect of relaxing the restriction on the operation of looms to the extent of the number of working hours per week transferred to it and it was held that this amount was part of the cost of operating the profit-earning apparatus and was clearly in the nature of revenue expenditure. Bhagwati J., speaking for the Supreme Court, pointed out that in different contexts different tests have to be applied for the purpose of determining whether a particular expenditure is revenue expenditure or capital expenditure. At page 12 of the report, Bhagwati J. observed: " We are conscious that in law as in life, and particularly in the field of taxation law....
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....r and service line for replacing the existing line to enable it to have higher KVA electric power for its business and this amount was claimed as revenue expenditure and the Allahabad High Court held that the service line was a part of the entire set-up for the functioning of the cold storage and the replacement of the existing line with a new line did not result in the creation of any new asset of enduring nature. The expenditure was not in the nature of capital expenditure and was, therefore, allowable in computing the income of the assessee. In this judgment, the Allahabad High Court relied on the decision of the Supreme Court in CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710. At page 159, it was observed by the Division Bench of the Allahabad High Court: " This means that in a case where the productive unit set up by the assessee remains the same, but a part of it which has become unsuitable for its use is replaced by something which makes it possible for the existing set up to function efficiently, the cost incurred on such replacement would be revenue expenditure. In the case before us, we find that the service-line undoubtedly was part of the entire set up for....
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....ls and it set up a new unit for the manufacture of phosphorus. For the new unit the assessee required a large quantity of electrical energy which it had to obtain from the Electricity Board. The Electricity Board agreed to provide an overhead service line free of cost up to 80 metres from the nearest distribution mains, but payment was to be made for the length of the service line in excess of 30 metres. A portion of the cost was to be paid by the assessee but the service line would remain the property of the Electricity Board, by which it was to be maintained. The period of supply was to be for a minimum period of seven years from the date of commencement of the supply. The assessee paid Rs. 9,00,000 as its contribution towards the cost of laying the overhead service line. The normal charges for consumption of electricity were to be paid by the assessee from month to month. On these facts, the Bombay High Court held that since the service line remained the property of the Electricity Board, the assessee did not acquire any capital asset or an enduring benefit or advantage and the object of making the payment was purely one of commercial expediency. Therefore, the payment made to t....