Sabyasachi Mukharji, J. - (1.) This reference relates to the assessment years 1964-65 and 1965-66. The assessee is a company and is engaged in heavy civil engineering works. The financial years of the relevant assessment years ended on 31st March, 1964 and 1965. The assessee's business was to undertake concreting jobs of huge magnitude of many projects scattered over a number of places in the country. For this purpose the assessee owns concrete mixers and other plant/machinery. In order to use these, mixers and plant/machinery, at times the assessee had to fix them on the ground till the work undertaken was completed. As soon as the work was completed at a particular site, the assessee was to remove these to other sites and so on. The assessee had taken a contract for the construction of a dam and a power house at Barabani in Assam, which involved a heavy amount of concreting work. Under the agreement entered into with the concerned authority the assessee was allowed to use the land at the site on the following condition which was condition No. 5 : " Use of land for construction purposes. Such land as may be available will be allowed to be used by the contractor for construction of their camps free of charge. The contractor will be responsible to clear the site after completion of their work in this contract and hand over the land to this department. The contractor will be liable to pay compensation for any damages done to the land. "
(2.) In order to fix the mixers and plant/machinery at the site, the assessee had to prepare a foundation on the land. For this purpose the assessee incurred a total expenditure of Rs. 11,90,706 during the financial years 1960-61 to 1962-63, and labelled it as "erection charges". This expenditure was capitalised in the books separately and was written off over the years on the basis of work done in each year. Accordingly, the assessee claimed deduction in the manner following : -------------------------------------------------------------------------------- Assessment years Claimed Rs. -------------------------------------------------------------------------------- 1962-63 25,080 1963-64 3,88,967 1964-65 6,26,016 1965-66 1,50,640 -------------------------------------------------------------------------------- 11,90,703 --------------------------------------------------------------------------------
(3.) For the assessment years under reference, the ITO disallowed the asses-see's claim for deduction of Rs. 6,26,016 and Rs. 1,50,640 respectively. In this connection it was observed as follows : " The installation charges of a fixed asset are not recurring expenses year to year. They are spent on fixed capital, not on circulating capital of the business. Thus the assessee should have capitalised the installation charges and claimed depreciation on the same. This is permissible by the Act and is sanctioned by the conventions of accountancy. The assessee has written off installation charges in a manner which is contrary to the provisions of income-tax (law) and accountancy, probably because the ' a ' (assessee) thinks that installation charges in the business of the company are revenue expenses because business is not fixed, at a particular place. The assessee takes number of contracts at different places in the country and when contracts are over, the business started at a particular place ceases. Consequently, fixed assets would have to be dismantled and transported to and reserved at a different site where a fresh contract is taken. Since on the transfer the installation charges incurred at a particular place would not increase the cost of machines, the assessee writes them off. It is right if the business is travelling business, for example, a travelling circus or a trade carried on at fairs and weekly markets at various centres. In that case, such expenses would form part of moving expenses. But the assessee's business is not a travelling one but flitting business. A travelling business is different from a flitting business where the policy of the business is to continually flit, it is not to travel. It is merely a case of substitution of one shop for another and for however short a time a shop lasts, it is permanent in its nature and then the business flits and hence the expenditure incurred in a flitting business is of a capital nature (Eastmans Ltd. v. Shaw, [1928] 14 TC 218 (HL), Hyam v. IRC, [1929] 14 TC 479 (C Sess), Smith v. Westinghouse Brake Co., [1888] 2 TC 357 (QB)). In the circumstances, the assessee's claim to write off installation charges on a self-chosen basis which is not in accordance with the provisions of the Act and is contrary to the conventions of accountancy, is not correct. The installation charges are part and parcel of the cost of the fixed assets and shall be considered for the purpose of- allowing depreciation. Writing off is not allowed. ";