COMMISSIONER OF INCOME-TAX VS BONGAIGAON REFINERY AND PETROCHEMICALS LTD.
1998 P T D 2484
[222 I T R 208]
[Gauhati High Court (India)]
Before D.N. Baruah and S.B. Roy, JJ
COMMISSIONER OF INCOME-TAX
versus
BONGAIGAON REFINERY AND PETROCHEMICALS LTD.
Income-tax Reference No. 12 of 1993, decided on 21/06/1996.
Income-tax---
----Capital or revenue expenditure ---Assessee running refinery---Contribution to Railway Department for construction of railway track and siding-- Necessary for the purpose of smooth running of business in a profitable and advantageous manner---Revenue expenditure---Expenditure incurred in relevant year of assessment alone to be allowed---Indian Income Tax Act, 1961, S.37.
The assessee, a public sector Government undertaking, running a refinery, contributed Rs.87,20,598 to the Railway Department for construction of railway track and siding outside the refinery complex. The assessee wrote off the expenditure to five instalments and claimed deduction of Rs.17,44,120 in each of the assessment years 1981-82 and 1982-83. The Assessing Officer disallowed the same. On a reference of the question whether the expenditure was revenue expenditure and on that reasoning one -fifth of the expenditure was deductible
Held, that the contribution to the Railway Department for construction of railway track and siding outside the refinery complex of the assessee was revenue expenditure. However, there was no provision for allowing the expenditure in five instalments. The expenditure incurred in the relevant year of assessment should be allowed. It was not known what was the expenditure incurred during the assessment years 1981-82 and 1982-83. It was for the Tribunal to find out the actual position.
CIT v. Associated Cement Companies Ltd. (1988) 172 ITR 257 (SC) and L.H. Sugar Factory and Oil Mills (P.) Ltd. v. CI.T (1980) 125 ITR 293 (SC) fol.
G.K. Joshi and U. Bhuyan for the Commissioner.
D.K. Talukdar and A.K. Sarnia for the Assessee.
JUDGMENT
D.N. BARUAH, J.---At the instance of the Revenue, the following question has been referred under section 2560) of the Income Tax Act, 1961 (for short, "the Act"):
"Whether, on the facts and in the circumstances of the case, the Tribunal has not erred in holding that expenditure of Rs.87,20,598 incurred in the construction of railway track and siding was of the nature of revenue expenditure and on that reasoning in allowing one-fifth of the total expenditure as an admissible item of deduction?"
The facts for the purpose of answering this question may be stated as follows: The assessee is a Government undertaking in the public sector engaged in the refining of crude oil and production of various kinds of by products. The assessee contributed a sum of Rs.87,20,598 to the Railway Department for construction of railway track and siding, etc., outside the refinery complex. The assessee claimed the said expenditure as revenue expenditure because according to the assessee the expenditure was for carrying out its business activity in a profitable and advantageous manner. The assessee decided to write off the aforesaid expenditure in five equal annual instalments and accordingly claimed deduction of Rs.17,4,4,120 in each assessment year on 1981-82 and 1982-83. The Assessing Officer disallowed the same. According to him, the expenditure was a capital expenditure for the obvious reason that the assessee acquired an asset of an enduring nature.
The assessee took up the matter by way of appeal before the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) endorsed the view of the Assessing Officer. The assessee was aggrieved by the order of the Commissioner of Income-tax (Appeals) and went in appeal before the Tribunal. The Tribunal also affirmed (sic) the view of the Commissioner of Income-tax (Appeals) holding that the expenditure was a capital expenditure. Hence, the present reference.
We have heard Mr. Joshi, learned counsel for the Revenue, and Mr. Talukdar, learned counsel appearing for the assessee.
Mr. Joshi submits that the expenditure incurred for construction of the railway track and siding are assets of an enduring nature. Therefore, it is a capital expenditure. On the other hand, Mr. Talukdar submits that laying down the railway track and siding was necessary for the purpose of smooth running of the business in a more profitable and advantageous manner.
In the rival contentions of counsel appearing on behalf of the Revenue as well as on behalf of the assessee, it is to be seen whether under the facts and circumstances of the case it can be said that the expenditure incurred by the assessee was a capital expenditure or a revenue expenditure. In this connection, reference can be made to a decision of the apex Court in L.H. Sugar Factory and Oil Mills (P.) Ltd. v. CIT (1980) 125 ITR 293. In the said case, it was held that the expenditure was made for the purpose of construction of roads in area around a factory which were wholly and exclusively laid out for business. The Supreme Court held that it was not a capital expenditure but a revenue expenditure and the entire expenditure was allowable as deduction. In another decision in CIT v. Associated Cement Companies Ltd. (1988) 172 ITR 257, the Supreme Court held that it was a revenue expenditure because the advantage was secured only in the field of revenue.
Following the above two decisions we find that this case is squarely covered by the decisions of the Supreme Court and accordingly, we hold that the expenditure incurred for construction of railway track and siding was revenue expenditure and not capital expenditure and, therefore, the assessee is entitled to deduction. The next point is whether, deduction can be divided and claimed in five parts. However, no provision is found under the law permitting allowance of one-fifth of the expenditure. However, deduction can be made in the relevant year if the same is incurred during that year. In this regard, we do not find any discussion in the order of the Tribunal. Therefore, it is not possible for us to answer the said question. We hold that expenditure incurred in the relevant year of assessment shall be allowed. If the expenditure is incurred in one year it will be allowed in the same year and if it is incurred in more than one year then it will be in the respective year as actually incurred. It is also not known what was the expenditure incurred during the assessment years 1981-82 and 1982-83. It is for the Tribunal to find out the actual position.
Considering all these, we hold that the expenditure of Rs.87,20,598 was not a capital expenditure but a revenue expenditure. We answer the first part of the question in the affirmative, in favour of the assessee and against the Revenue. Because of meagre facts, we decline to answer the rest portion.
M.B.A./1532/FCOrder accordin