H.N. Seth, J. - (1.) THIS is a reference under Section 66(1) of the Indian Income-tax Act, 1922, at the instance of the assessee, Lakshmi Sugar and Oil Mills. Hardoi.
(2.) THE Income-tax Appellate Tribunal has submitted a statement of the case and has referred the following question for the opinion of this court, in respect of the assessment year 1961-62 : " Whether, on the facts and in the circumstances of the case, the payment of Rs. 14,333 is an expense allowable under Section 10(1) or Section 10(2)(xv) of the Act ? " The assessee carries on the business of manufacturing sugar. It appears that a scheme was sponsored by the Government of India and the Government of Uttar Pradesh for developing roads. In this connection, the assessee paid a sum of Rs. 14,333 towards the cost of construction of those roads. The assessee also paid various sums of money, in the years relevant to the assessment years 1957-58 to 1959-60, towards the cost of construction of roads under the same scheme. In all these years, the assessee claimed that, as it was a manufacturer of sugar and its business entirely depended on the development of sugarcane and its transportation, the expenses in question were incurred in furtherance of its trade and should be allowed as deduction under Section 10(2)(xv) of the Act. In respect of the assessment years 1957-58 and 1959-60 the Tribunal, by its order dated April 11, 1963, rejected the contention raised by the assessee. Following that decision, the assessee's claim for the deduction of Rs. 14,333 in respect of the assessment year 1961-62 was also rejected. The assessee made application for referring the questions involved in the case in respect of the assessment years 1957-58 to 1959-60 and 1961-62 to this court for opinion. The Tribunal accepted the request made by the assessee and referred the afore-mentioned question for the opinion of this court in respect of all the afore-mentioned assessment years. In this court the reference made in respect of assessment year 1959-60 was numbered as I.T.R. No. 87 of 1964 Lakshmi Sugar and Oil Mills Ltd. v. Commissioner of Income-tax, 1970 77 ITR 690.
(3.) THIS court, by its judgment dated 4th November, 1969, since reported in [1970] 77 I.T.R. 690, held that the payment made to the Government in pursuance of a scheme for development of roads in cane growing rural areas, brings assets of a capital nature into existence and should be classed as capital expenditure and is not a permissible expenditure under Section 10(2)(xv) of the Act. It was also held that under commercial principles an outgoing of a capital nature cannot be an allowable deduction in the computation of business profits debitable in the profit and loss account, and, hence, the payment cannot be allowed under Section 10(1) of the Act. While deciding the first part of the question, this court relied upon a decision in Dewan Sugar and General Mills P. Ltd. v. Commissioner of Income-tax, [1970] 77 I.T.R. 572, 574 (All.), wherein it was observed as follows ; " When new roads are constructed, a capital asset comes into existence. It may be that the land, on which roads in question were constructed, did not belong to the assessee. But that circumstance did not alter the fact that the contribution made by the assessee brought assets of a capital nature into existence. Such expenditure must, therefore, be classed as capital expenditure. The Tribunal was right in not treating the expenditure as a permissible expenditure under Section 10(2}(xv) of the Act." Learned counsel for the assessee concedes that so far as the ratio underlying the decision in the case of Dewan Sugar Mills and the case decided by this court on November 4, 1969, [1970] 77 I.T.R. 690, is concerned, it is completely applicable to the facts and circumstances of the present case. If these two cases lay down correct law, the question referred by the Tribunal will have to be answered against the assessee. He, however, contends that these two decisions require reconsideration. According to him, the criteria laid down by the Supreme Court for determining as to when an expenditure would be of a capital nature and when it would be of a revenue nature, in the case of Bombay Steam Navigation Co. 1953 Private Ltd. v. Commissioner of Income-tax, 1965 56 ITR 52; [1965] 1 S.C.R. 770 (S.C.), was not brought to the notice of this court. The criteria laid down in that case was subsequently quoted with approval by the Supreme Court in the case of Commissioner of Income-tax v. Kirkend Coal Co., 1970 77 ITR 530 .. According to the learned counsel, if the test as laid down by the Supreme Court in the afore-mentioned cases is applied to the facts of the present case, the expenditure in this case should also be regarded as revenue expenditure admissible as deduction under Section 10(2)(xv) of the Act. He also relied upon certain observations made by this court in the case of Security Printers of India P. Ltd. v. Commissioner of Income-tax, 1970 78 ITR 766 All., in which the question that arose for consideration was whether the expenditure incurred by an assessee in respect of foreign tour undertaken by its agent to acquaint himself with new and modern techniques was revenue expenditure. This court observed that such an expenditure was incurred only with a view to earn greater profits in a competitive market and not to acquire a new asset. Learned counsel contended that, in the instant case also, by incurring the expenditure, no new asset was acquired by the assessee. Contribution for developing the roads in the area was made so that cane may be transported to the factory in a more convenient manner and the assessee may be able to earn greater profits. The expenditure in question was, therefore, revenue expenditure.;