Sengupta, J.@mdashThis is an application u/s 261 of the income tax Act, 1961 (''the Act'') for leave to appeal to the Supreme Court against the
judgment and order dated 11-9-1989. The question of law which was referred to this Court u/s 256(1) of the Act, is as follows :
Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure of Rs. 20,00,598 could not be
allowed as a revenue expenditure as it represented an expenditure of capital nature ?
Shortly stated, the facts leading to this reference as recorded in the judgment are as follows:
The facts found by the Tribunal as stated in the statement of case are as under:
Before the ITO, the assessee claimed a deduction of Rs. 20,00,598 which had been incurred on construction of a road by the assessee. The ITO
mentioned in his order that the road was 10 kms. long in the District of Kolapur, Maharashtra. This road connected the main road with the
company''s mining area situated in a village named ''Nagarsatavdi''. The ITO observed that there was no motorable road linking the main road with
the mining area of the assessee-company and this road was constructed by the assessee-company for the first time by incurring a huge expenditure.
According to the ITO, this was a benefit of enduring nature coming to the assessee and he, therefore, treated it as capital expenditure and did not
allow the deduction.
Before the AAC, it was contended that the expenditure had been incurred for more efficient running of the business of the assessee. It was further
stated that the land on which the road had been constructed did not belong to the assessee and it was further stated that earlier there was a katcha
road which was much longer and that road was replaced by a shorter motorable road. The assessee relied on the decision of the Calcutta High
Court in the case of COMMISSIONER OF Income Tax, WEST BENGAL Vs. HINDUSTHAN MOTORS LTD., . The AAC found that prior
to the construction of this new road the company was carrying bauxite and stores of the company along the highway. He found that the distance
was reduced by 6.35 kms. by the construction of this new road. The AAC was of the view that this was an absolutely new road and it was not a
case of repairing/covering by metal of an already existing road.
Before the Tribunal it was contended that the land had been made available to the assessee by the Collector of Kolapur for the specific purpose of
construction of a feeder road from the company''s mining area up to the main highway. It was also submitted that the land had been leased out for
a period of 30 years and after the expiry of the lease the land was to be delivered to the Government. The road was to be maintained and repaired
by the assessee. It was contended that though these facts were not stated before the lower authorities, the basic fact of road being constructed to
shorten the distance and, thus, to remove a permanent inconvenience had been stated. The Tribunal considered the facts and held that the assessee
constructed a new feeder road and this road was not merely improvement of an already existing road. The earlier road, according to the Tribunal,
was discarded and in its place this new motorable road was constructed having a width of 80 ft. costing more than Rs. 20 lakhs. As an absolutely
new road was constructed the Tribunal held that the expenditure was of capital nature.
2. The Division Bench considered the question which was raised as follows:
An expenditure of more than Rs. 20 lakhs was incurred for the purpose of constructing a new road. The road was 80 ft. in width and more than 10
miles in length. The road was built on a plot of leasehold land, acquired by the assessee for the purpose of constructing the said road. The assessee
had to maintain this road. The lease was of 30 years duration and on expiry of that period the road had to be handed over to the Government. The
road was built to reduce the distance from the main road to the mines owned by the assessee. The assessee''s case is that the expenditure incurred
was for the purpose of its business and, therefore, must be treated as revenue expenditure.
3. Several decisions of the Supreme Court were referred to the Division Bench including the decision of the Supreme Court in L.B. Sugar Factory
and Oil Mills (P) Ltd., Pilibhit Vs. Commissioner of Income Tax , U.P., Lucknow, . The Division Bench considered this judgment in extenso and
thereafter recorded as follows :
Therefore, the special features of the case which were emphasised by Bhagwati, J. were: (1) by spending the amount of Rs. 50,000, the assessee
had not acquired any asset of an enduring nature. The road belonged to the Government of Uttar Pradesh and not the assessee; (2) the assessee
paid only a small part of the cost of construction; (3) the construction of these roads facilitated the business operation of the assessee; and (4) it
was not an advantage in the capital field because no tangible or intangible asset was acquired by the assessee nor was there any addition to or
expansion of the profit-making apparatus to the assessee.
In the instant case, the assessee has acquired a leasehold property and has constructed a road on that property. The road belongs to the assessee.
The assessee has acquired an asset of an enduring value. The asset is a tangible asset. The road is a new motorable road having width of 80 ft. The
assessee spent Rs. 20,00,000 on construction of the road. The assessee was responsible for the maintenance of the road. In my judgment, such an
expenditure has to be regarded as of capital nature.
I am unable to uphold the contention of Dr. Pal that in view of these three decisions of the Supreme Court, it can be said that the Supreme Court
has departed from the well established principles for distinguishing a capital expenditure from revenue expenditure. On the contrary, in all the three
judgments of the Supreme Court attempt has been made to extend the principles from the well-known cases and apply the principles in
determining whether the expenditure should be capital expenditure or revenue expenditure.
4. In the judgment of the Supreme Court in the case of L.H. Sugar Factory & Oil Mills (P.) Ltd. (supra), Justice Bhagwati emphasised the fact that
the road was not a new road. It was not an asset of the assessee. The assessee had not paid the total construction cost of the road but had made a
small contribution towards it. The assessee had not acquired any asset tangible or otherwise. The profit-making apparatus of the company remains
unchanged as a result of this expenditure. That is why the expenditure would be of revenue nature. Justice Bhagwati was not laying down new
principles of law or departing from the well-known principles for distinguishing a revenue expenditure from a capital expenditure. Relying on these
principles it was held that the expenditure in that case was to be treated as revenue expenditure.
5. It will be seen from the judgment of the Supreme Court in the case of Travancore-cochin Chemicals Ltd. Vs. Commissioner of Income Tax,
Kerala, , that Gupta, J. considered that the decision given in the case of Lakshmiji Sugar Mills Co. P. Ltd. Vs. Commissioner of Income Tax, New
Delhi, must be confined to the peculiar facts of that case. Similarly, Bhagwati, J. in the case of L.H. Sugar Factory & Oil Mills (P.) Ltd. (supra)
observed that the judgment delivered in the case of Travancore-Cochin Chemicals Ltd. (supra) must be confined to the peculiar facts of that case.
In fact, when a question of capital or revenue expenditure arises, the question has to be decided by carefully considering every aspect of the case.
It was observed by Hidayatullah, J. in the case of K.T.M.T.M. Abdul Kayoom and Another Vs. Commissioner of Income Tax, :
...Each case depends on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail
may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour
of one case against the colour of another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not
at all decisive. What is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relation inter
se, and this is only key to resolve the issue in the light of the general principles, which are followed in such cases. (p. 703)
In that case, the Supreme Court considered that yearly rent of Rs. 6,111 paid to the Government for three years'' lease of a specified area with
liberty to fish for and take and carry away all chank shells was capital expenditure.
Lastly, one more point has to be noted. Dr. Pal has argued that the assessee could not be treated to be the owner of the road. On the facts of this
case, I fail to see how the assessee can deny being the owner of the road. The assessee took the land on lease for construction of the road. The
road was constructed by the assessee on that piece of land. The upkeep and maintenance of the road was the responsibility of the assessee. Some
other persons occasionally may use the road; but that will not prevent the assessee from being the owner of the road.
The assessee has itself put the matter beyond doubt by claiming depreciation allowance on this road. This was negatived by the AAC but was
allowed by the Tribunal. The claim for depreciation could be made by the assessee only on the basis that the road was owned by the assessee and
was used for the purpose of its business.
6. Having regard to the principles laid down by the Supreme Court which have been duly considered by the Division Bench we do not think that it
is a fit case for leave to appeal to the Supreme Court. The question whether an expenditure is capital or revenue has to be decided on the facts of
the particular case and it has been decided in the light of the facts and circumstances of the case and in the light of the principles laid down in the
several decisions of the Supreme Court recorded by the Division Bench in the aforesaid judgment.
7. We are, therefore, of the view that the question which is raised in this application is not required to be decided by the Supreme Court. Hence,
we dismiss this application. There will be no order as to costs.
Sen, J.
I agree.