- (1.) This is an appeal, on a certificate given under S. 66-A (2 of the Indian Income Tax Act, 1922, against a judgment and order of a division bench of the Bombay High court. The appeal is preferred by the Commissioner of Income Tax and the assessee, the Associated Cement Companies Ltd. is the respondent.
(2.) The judgment against which the appeal is directed was rendered on a reference under S. 66 (1 of the Indian Income Tax Act, 1922. The question referred to the court for consideration was as follows: Whether on the facts and in the circumstances of the case, the expenditure of Rs. 2,09,459. 00, or any portion thereof, incurred by the company in the accounting period relevant to the assessment period 1959-60 was allowable as deduction in determining the profits of the company for the assessment year 1959-60.
(3.) The relevant facts are as follows: The assessee, the Associated Cement Companies Ltd. has a chain of factories manufacturing cement all over the country. The assessment year in question is the year 1959-60 and the corresponding previous year was ended on 31/07/1958. One of the factories of the assessee was situated at Shahabad, which is now in the State of Karnataka, but was at the relevant time forming part of the then State of Hyderabad. In September 1956, the government of Hyderabad had decided to include the area on which the said factory at Shahabad was situated within the municipal limits of the Shahabad Townmunicipality. A tripartite agreement between the government of Hyderabad, the assessee company and the Municipality was arrived at on 30/10/1956 between the aforesaid three parties. Under the agreement, the assessee undertook to supply water to the Shahabad town and village. It further agreed to put up a high tension electric transmission line and to supply electricity for the street lighting of the Shahabad town. It also agreed to concrete free of charge the existing main road from the factory up to the railway station via the main bazaar. During the relevant previous year, the only work done was with respect to provision of water supply to the said town and village. Under the agreement, the assessee initially agreed to supply certain quantity of water to the Shahabad town at a concessional rate and for the purpose of such supply the assessee company was to undertake and complete at its own cost the water supply scheme) for the town and village, involving laying of the main water pipelines. The assessee company was to be the owner of the pipelines, installations and other accessories pertaining to the water supply lying within the company's premises and on the land a little outside the premises. The Shahabad Municipal Committee was to take over possession of the remaining pipelines, installations and accessories and it was declared to tie the owner 'thereof. These pipelines installations, etc. had to be maintained by the Municipal Committee in future. Under Clause 23, in consideration of the assessee company having agreed to provide these amenities, supply and services, the government of Hyderabad undertook not to include any of the-properties of the company comprising the cement factory, the main workshop, the housing colony, quarries and the limestone bearing lands within the limits of the Shahabad Municipality or the village panchayat or like body for a period of fifteen years from the date of the agreement.;