- (1.) This consolidated reference under Section 256(1) of the I.T. Act, 1961, relates to assessment years 1965-66, 1966-67 and 1968-69, the corresponding previous years ending respectively on the 30th September, of the calendar years 1964, 1965 and 1967. The facts found and/or admitted in the reference are as follows : Indian Explosives Ltd., the assessee, carries on business of manufacture of explosives. Its factory is situated at Gomiah, in the district of Hazaribagh within the State of Bihar. For the convenience of executives who had to travel between Gomiah and Calcutta frequently in connection with the assessee's business, the assessee decided to construct an airstrip in the neighbourhood of Gomiah and purchase an aircraft to be used for such journeys. The assessee entered into an agreement in writing dated 3rd May, 1968, with the National Coal Development Corporation (hereinafter referred to as the Corporation), under which a licence and/or permission was granted to the assessee in respect of a plot of land at Gomiah belonging to the Corporation measuring about 18'25 acres on, inter alia, the following terms and conditions: (a) The said licence and/or permission would be for a term of 10 years commencing from the 1st May, 1963. (b) The assessee would pay an annual licence fee of Rs. 4,500 to the Corporation during the said term. (c) The assessee would construct on the said land at its cost an airstrip and buildings ancillary thereto which would become and remain the property of the Corporation. (d) The assessee would be entitled to use, occupy and enjoy the said land and the airstrip during the said term. (e) In the event of the said land or any part thereof being acquired or requisitioned during the term, the licence would determine and the assessee would be entitled to receive and keep such compensation as it may be entitled to in law subject to the condition that the Corporation would be entitled to receive compensation for the land. (f) On a notice being given before the expiry of the term and subject to due observance and performance of the covenants and conditions by the assessee, the Corporation would grant a further licence to the assessee for another term of ten years on the same terms and conditions except that licence fee payable would be redetermined.
(2.) Pursuant to the said agreement the assessee constructed an airstrip in the said land incurring expenditure of Rs. 3,76,542, Rs. 17,315 and Rs. 32,082 in the respective assessment years 1965-66, 1966-67 and 1968-69. The said expenditure was debited in the assessee's miscellaneous expenses account and written off successively in its profit and loss account as follows: JUDGEMENT_392_ITR147_1984Html1.htm
(3.) The above amounts were claimed by the assessee to be allowable deductions in the said assessment years. The ITO in the proceedings before him held that the construction of the airstrip conferred on the assessee a benefit of an enduring nature and was a capital asset and, therefore, no part of the expenditure was revenue expenditure. He disallowed the claim for deduction.;