V.G. Oak, C.J. - (1.) THIS is a reference under Section 66 of the Indian Income-tax Act, 1922. The assessee is a limited company, which manufactures sugar. The assessment year is 1958-59. During the relevant accounting period the assessee made a payment of Rs. 25,000 to the Government as contribution towards road development fund. The assessee claimed deduction for this amount of Rs. 25,000. Secondly, the assessee received from the Government a sum of Rs. 40,419 for early start of crushing of sugarcane in accordance with a Government press note dated October 12, 1956. The assessee contended that this sum did not represent the assessee's income. On both the points the Income-tax Officer found against the assessee. As regards the first item, it was held that the sum of Rs. 25,000 represented capital expenditure. On the second point, it was held that the receipt of Rs. 40,419 represented the assessee's income. Assessment was made accordingly. THIS view was upheld in appeal by the Appellate Assistant Commissioner and by the Appellate Tribunal.
(2.) AT the instance of the assessee, the Tribunal has referred the following two questions to this court: "(1) Whether, on the facts and in the circumstances of the case, the payment of Rs. 25,000 made by the assessee-company to the Government towards road development fund was a capital expenditure and, hence, not allowable under the Income-tax Act ? (2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 40,419 received by the assessee-company from the Government for early start of crushing of sugarcane represented taxable income in the hands of the assessee-company under the provisions of the Indian Income-tax Act, 1922 ?" 2. The first question refers to the payment of Rs. 25,000 by the assessee-company to the Government towards road development fund. It has been found that the purpose of the fund was to convert kachcka roads into pucca roads. The question is whether this was revenue expenditure or capital expenditure. In Commissioner of Income-tax v. Hindusthan Motors Ltd., 1968 68 ITR 301 the location of the factory of a motor car manufacturing company was at a little distance from the main trunk road. There was an approach road from the main trunk road to the factory premises of the assessee. The road belonged to the Government of West Bengal. The approach road fell into disrepair and began to cause transportation difficulties to the assessee. The Government was not prepared to meet expenses for repairs. Thereupon, the assessee offered to contribute a sum of Rs. 39,770 for improvement of the approach road. It was held that the money was spent not so much to bring about any asset or advantage of enduring benefit to itself but to run the business efficiently and conveniently. It was, therefore, held that this expenditure should be allowed under Section 10(2)(xv) of the Indian Income-tax Act, 1922. In Commissioner of Income-tax v. S. B. Ranjit Singh, [1955] 28 I.T.R. 14 the assessee had leased a hotel with furnishings and fittings for 20 years. An expense of Rs. 24,904 was incurred in resurfacing with concrete the approach roads which had fallen into a bad state. It was held that the expenditure was an allowable deduction. The expense was incurred in respect of current repairs.
(3.) A somewhat similar case came before us in Dewan Sugar and General Mills P. Ltd. v. Commissioner of Income-tax, 1970 77 ITR 572 All. (I.T.R. No. 835 of 1963 decided on 12-9-1969). In that case expenditure was incurred for constructing new roads. We held that a capital asset had come into existence. Consequently, the expenditure could not be allowed under Section 10(2)(xv)of the Act. In the present case, the sum of Rs. 25,000 was spent by the assessee in order to have kachcha roads converted into pucca roads. Conversion of kachcha roads into pucca roads cannot be placed on the footing of current repaiis. Pucca roads are substantially different from kachcha roads. It may be that the land, on which the roads stand, does not belong to the assessee. But that circumstance does not alter the fact that the pucca roads built on the land are likely to be of permanent benefit to the assessee. The pucca roads brought into existence an advantage of enduring nature. Consequently, this expenditure of Rs. 25,000 must be treated as capital expenditure. The Tribunal was right in not allowing deduction on account of this expenditure of Rs. 25,000.;