- (1.) CHANDIGARH Bench 'B', Chandigarh in ITA Nos. 597/Chandi/1999 and 529/Chandi/1999, for the asst. yr. 1996 -97, proposing following substantial questions of law : "(i) Whether, on the facts and circumstances of the case, the Hon'ble Tribunal was justified in law in allowing the expenditure of Rs. 70,79,862 incurred by the assessee under the head 'Building account', for the construction of drainage for disposal of effluents by treating the same as revenue expenditure, by ignoring the facts that the assessee has acquired an asset of enduring benefit in nature and enjoys exclusive right for the usage of the same ? (ii) Whether, on the facts and circumstances of the case, the Hon'ble Tribunal was justified in holding that the amount of TDS is a part of circulatory capital of the assessee and in allowing the amount of Rs. 2,04,259 being TDS certificates from banks as revenue expenditure without appreciating the fact that the amount in question was never employed in trading operation of the business - N
(2.) THE assessee was running a paper mill which generated effluents. It was under an obligation to arrange discharge of the said effluents. An agreement was reached with the forest department allowing the assessee to build a drain for discharge of effluents in Tallewal drain. The assessee built such a drain by spending Rs. 70,79,862. The assessee claimed the said amount as revenue expenditure, which was disallowed but the CIT(A) allowed the said claim which has been upheld by the Tribunal. It was observed by the AO : "4.1 I have carefully gone through the judgments relied upon by the assessee on the basis of which it has claimed the expenditure of Rs. 70,79,862 incurred by it on the construction of pipeline for disposal of effluents, as 'revenue expenditure'. However, on close scrutiny it is seen that the facts involved in the cases cited by the assessee, are different from the facts of the present assessee's case, on the following counts : (i) In the case of this assessee, it has exclusive right to use the drainage and pipeline constructed by it for draining out the effluents. The said pipeline has been constructed by it for draining out the effluents. The said pipeline has been constructed for the benefit of the assessee only. However, in the cases of the judgments relied upon by the assessee, those assessees had no exclusive right for use of the asset which came into existence : (a) In the case of L.H. Sugar Factory and Oil Mills (P) Ltd., the assessee had made contributions for the construction of road and dam which was not being exclusively used by the said assessee. The said properties were to be the properties which were being used by the public also. (b) In the case of Panyam Cement and Mineral Industries Ltd., the assessee -company had made contributions for the construction of a bridge over the railway crossing near its factory. Needless to say that the bridge over a railway crossing is to be used by the public including the employees of the assessee making the said construction of the bridge. Moreover, the bridge so constructed did not become the property of the said assessee, but it was the property of the Railway Department. (c) In the case of Navsari Cotton and Silk Mills Ltd., the said assessee made contribution/payment to the municipality for repairing the drainage pipeline which belonged to the municipality and was not the property of the assessee -company. (d) In the case of Luxmijee Sugar Mills Co. Ltd., the assessee made certain contributions to the Cane Development Council for the construction and development of the roads between the various sugarcane producing centres and the sugar factories. The said roads did not belong to the said assessee making the payments. (ii) In the cases relied upon by the assessee, those assessees had made contributions to different agencies for carrying out certain works. 'M/s L.H. Sugar Factory and Oil Mills (P) Ltd. had made contributions to the U.P. State Govt., M/s Panyam Cement and Mineral Industries Ltd. had made payment to railway authorities, M/s Navsari Cotton and Silk Mills Ltd., had made payments to municipal authorities and M/s Luxmijee Sugar Mills Co. Ltd. had made payment to the Cane Development Council. However, in the case of the present assessee, it has not made payment to any other agency rather it has incurred the expenses itself for the construction of the drainage pipeline to discharge its effluents. The drainage pipeline constructed by the assessee -company is not a public property, but an exclusive property/assets of the assessee for discharging the effluents from its factory. 4.2 Keeping those facts in view, the judgments relied upon by the assessee are not applicable and relevant in the case of this assessee. Moreover, the assessee has itself debited an amount of Rs. 70,79,862 to the 'Building a/c'. Since the benefit accrued by the assessee for its business by constructing the said pipeline, is a benefit of enduring nature and a tangible asset in the form of drainage pipeline has come into existence, the amount of Rs. 70,79,862 incurred by the assessee on the construction of pipeline cannot be allowed as "revenue expenditure" and same is capitalized under the head, 'Building a/c' as has been done by the assessee in its books of account. Accordingly, the assessee is allowed depreciation @ 5 per cent on this amount of Rs. 70,79,862 as it is allowable in the case of building. The allowable depreciation in respect of this amount comes to Rs. 3,53,993 for which necessary effect is given in the computation of total taxable income. The depreciation has been allowed @ 5 per cent only as the said pipeline has been used by the assessee for a period of less than 180 days during the previous year relevant for the asst. yr. 1996 -97."
(3.) BASIS of the finding of the Tribunal is that the assessee neither acquired ownership of the land nor unlimited use thereof; there is no increase in the profit -earning capacity of the assessee; the assessee did not acquire any enduring benefit; the assessee was required to keep the drain in a condition that there is no seepage or leakage of effluents. Finding of the Tribunal is as under : "Thus, we are of the opinion that by incurring an expenditure on the construction of drain on the forest land, the assessee has neither acquired any capital asset nor benefit of enduring nature in the commercial sense. The fact that assessee was allowed exclusive use of land for discharge of effluents was immaterial as the assessee can use such land only for a limited purpose. It is also not relevant whether the benefit for using the drain for discharge of effluents was to run for a number of years or for a short period. The expenditure incurred has neither increased the profitability of the assessee nor its production. The expenditure so incurred was necessarily for the purpose of its business and is allowable as revenue expenditure. We, therefore, confirm the order of learned CIT(A) and dismiss this ground of appeal of the Revenue." Learned counsel for the Revenue submitted that the view taken by the Tribunal was erroneous as the assessee had benefit of enduring nature by the expenditure in question and had acquired a right to discharge its effluents, which is a right of enduring nature.;