- (1.) THE Punjab State Civil Supplies Corporation Ltd. , Chandigarh, the assessee, claimed deduction of the amount spent on purchase of tarpaulins and polythene covers to protect the foodgrains stored by it from rain, dust, storm, etc. , as revenue expenditure under Section 37 of the Income-tax Act, 1961 (hereinafter called "the Act" ). The Income-tax Officer did not allow the deduction on the reasoning that these items were not being used for packing the material and considered the expenditure to be of capital nature. On appeal, the Commissioner of Income-tax (Appeals) came to the conclusion that depreciation on the purchase cost to the extent of 10% was allowable. On further appeal, the Income-tax Appellate Tribunal, Chandigarh, agreed with the view taken by the Income-tax Officer but upheld the order of the Commissioner of Income-tax (Appeals) allowing depreciation as no appeal against it was filed by the Revenue. This has necessitated the Tribunal to refer the following question for the opinion of this court: "whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the value of the tarpaulin and polythene covers is not allowable as a deduction while computing the income of the assessee in the initial year of their purchases ?"
(2.) IT is undisputed that the assessee is a Punjab State undertaking and is a nominee of the State Government for wholesale distribution of levy sugar and other foodgrains on the notified prices by the Government. In this process, it has to store large quantities of foodgrains and it is also not disputed that sometimes, the permanent storage capacity is found to be short and the foodgrains have to be stored in stacks in the open and if they are left just like that unprotected during rain, dust, storm and sun, they can get spoiled or completely destroyed. Therefore, to save them from destruction, it is the imperative duty of the assessee to cover them properly and in order to cover them, it purchased tarpaulins and polythene covers.
(3.) WE are not impressed with the argument of counsel for the Revenue that such covers would fall within the definition of "plant" contained in Section 43 (3) of the Act and such an expenditure would be in the nature of capital expenditure. In the alternative, an argument was raised that whenever they are replaced, deduction would be allowed under Section 37 of the Act as replacement cost. The Supreme Court in L. H. Sugar Factory and Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293 and CIT v. Associated Cement Companies Ltd. [1988] 172 ITR 257 has held that for carrying business activity in a profitable way and advantageous to the assessee, if any expenditure is incurred for the construction of water pipe lines and high tension electricity supply lines or construction of roads by the assessee on Government or municipal land, such an expenditure is allowable as revenue expenditure. We are of the opinion that the expenditure incurred on the purchase of tarpaulins and polythene covers to save the very existence of the foodgrains, which is the main business of the assessee, from rain, dust, storm, sun, etc. , would certainly be a revenue expenditure.;