AJIT K.SENGUPTA, J. - (1.) THIS is an application under S. 261 of the IT Act, 1961 ('the Act') for leave to appeal to the Supreme Court against the judgment and order dt. 11th Sept., 1989. The question of law which was referred to this Court under 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?"
(2.) 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 a 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 CIT vs. Hindusthan Motors Ltd. (1968) 68 ITR 301 (Cal). 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 upon 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 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. 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.H. Sugar Factory & Oil Mills (P) Ltd. vs. CIT (1980) 125 ITR 293 (SC). 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. ;