JUDGMENT
P.D. Dinakaran, J.
1. The substantial question of law that arises for consideration in the present appeal is, whether the Tribunal was right in holding that the expenditure incurred for shifting of the factory from Kovilpatti to Cuddalore is a revenue expenditure or capital expenditure under the following facts and circumstances of the case.
2.1 The respondent/assessee company is engaged in the business of dyeing and processing of cloth and it filed its return of income for the asst. yr. 1992-93 declaring ‘nil’ income. In the said return, the assessee claimed a sum of Rs. 6,80,908, being the expenses incurred for shifting the factory from Kovilpatti to Cuddalore, as revenue expenditure. But, the AO, by an assessment order dt. 29th Feb., 2000, disallowed the claim of the assessee and treated the same as capital expenditure by relying upon the decision of the apex Court in Sitalpur Sugar Works Ltd. v. CIT and a decision of this Court in CIT v. Bimetal Bearings Ltd. which an appeal was preferred by the assessee before the CIT(A), who also confirmed the order of the AO by an order dt. 1st June, 2004. But, on further appeal by the assessee before the Tribunal, taking note of the facts and circumstances of the case and the reason for shifting the factory from Kovilpatti to Cuddalore, the Tribunal held that the expenditure incurred for shifting the factory is a revenue expenditure and accordingly, held the issue in favour of the assessee. Hence, the present appeal by the Revenue.
3. The bone of contention of Mr. J. Narayanaswamy, learned counsel appearing for the appellant/Revenue, is that the expenditure incurred by the respondent/ assessee for shifting of the factory from Kovilpatti to Cuddalore is only for the greater and better advantage of the trade and, therefore, such expenditure is to be construed only as a capital expenditure. In support of his contention, the learned counsel for the appellant contends that the AO was right in placing reliance on the decision of the apex Court in Sitalpur Sugar Works Ltd. v. CIT (supra) and of this Court in CIT v. Bimetal Bearings Ltd. (supra), wherein this Court has applied the ratio laid down in India Pistons Repco Ltd. v. CIT (1983) 143 ITR 424 (Mad).
4. We have considered the submissions made by the learned counsel appearing for the appellant.
5.1 Of course, the apex Court, in Sitalpur Sugar Works Ltd. v. CIT (supra), dealt with the case of shifting of factory to improve the business, whereunder the expenditure for shifting the factory was incurred in dismantling and refitting the existing plants at a better site. In the said case, the assessee company was manufacturing sugar in its factory situated originally at Sitalpur and that place suffered from the ravages of floods, and good quality sugarcane was not available there in sufficient quantities. With a view to improve its business, the assessee therein shifted the factory to Garaul and in the course, the assessee dismantled the building and machinery and transported the same and erected them at Garaul incurring an expenditure, which was treated as a capital expenditure. The apex Court, confirming the finding of the Revenue, held that the expenditure was not incurred for the purpose of carrying on the concern, but was incurred in setting up the concern with a greater advantage for the trade than it had in its previous set up and, therefore, the expenditure incurred for such better advantage was held to be a capital expenditure, as the assessee therein intended to produce larger profits and better and greater advantage.
5.2 Similarly, this Court in CIT v. Bimetal Beatings Ltd. (supra), also held that the expenditure incurred by the assessee therein, viz., Bimetal Bearings Ltd., for shifting the factory is a capital expenditure, as it was intended due to certain labour unrest. The said view was also supported by a decision of this Court in the case of India Pistons Repco Ltd. v. CIT (supra), whereunder the assessee therein, due to the incessant labour trouble, shifted its factory to a new place and incurred an expenditure, which was treated as capital in nature.
5.3 In all the above cited cases, the test of enduring benefit for deciding whether the expenditure incurred by shifting the factory from one place to another is a revenue or capital was applied. Of course, strongly placing reliance on the decision of the apex Court in the case of Sitalpur Sugar Works Ltd. (supra) with regard to the application of test of enduring benefit to the assessee while shifting the factory, our attention was also invited to the observation of this Court in the case of India Pistons Repco Ltd. v. CIT (supra) that the enduring benefit is often regarded as the hallmark of capital expenditure. The Revenue, in those cases, relied upon the dictum of Viscount Cave in Atherton’s case
(1925) 10 Tax Cases 155 (HL) whereunder it was held that whatever brings into existence an asset or an advantage of an enduring benefit must be regarded as capital expenditure. In the Artherton’s case (supra), at p. 192, it was also held as follows :
… When an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to
capital.
5.4 In other words, an expenditure is made for shifting of the factory not for mere enduring benefit of a trade, but due to other compelling circumstances, viz., for the very existence or survival of the factory itself, thus, qualifying the phrase used in the Artherton’s case (supra), viz., “special circumstances leading to an opposite conclusion”, namely, the expenditure so incurred need not necessarily be treated as capital expenditure. Therefore, we are constrained to examine the facts of the present case whether there is any special circumstance, which leads to an opposite conclusion, viz., the expenses incurred while shifting of the factory from Kovilpatti to Cuddalore, is a revenue expenditure.
6.1 Now, coming to the facts and circumstances of the case, it is not, as weighed by the CIT(A) that by shifting of the factory, the respondent/assessee had the benefit of a better and more congenial business atmosphere in the new premises, but the respondent/assessee, who originally housed its factory in a leasehold building at Kovilpatti within the premises of Loyal Textile Mill Ltd. which was supporting the respondent/assessee by providing job work for dyeing, by shifting the factory from Kovilpatti to Cuddalore, had actually lost its advantage of being in the proximity of Loyal Textile Mill Ltd., which was providing job work for dyeing and the raw material and the finished products, therefore, had to be reshifted from Kovilpatti to Cuddalore and back to Kovilpatti, and thus, it is obvious that the shifting had only worked to the disadvantage of the respondent/assessee.
6.2 Another compelling circumstance for shifting, concededly, is that the respondent/assessee company did not have any option but to shift the factory due to the opposition by public against letting out of the sewage water. Even though, the assessee tried its best to treat the waste water and to remove the effluents, the public was not satisfied with the same, as they insisted upon shifting of the factory. Of course, in the meanwhile, the Government of Tamil Nadu had set up SIPCOT Industrial Estate near Cuddalore, where the facilities for setting up chemical industries were provided, which may be an advantage to the respondent/assessee incidental to the shifting. We are satisfied that the benefit that the Government of Tamil Nadu has provided by setting up SIPCOT Industrial Estate at Cuddalore with facilities for setting up chemical industries by providing necessary provisions for effluent treatments, is incidental because the respondent/assessee had also provided such effluent treatments to the best of its efforts to treat the waste water and to remove the effluents therein at Kovilpatti itself, but still, the public was not satisfied. But; for the effort of the assessee to treat the waste water and to remove the effluents by providing effluent treatment plants at Kovilpatti, the argument that by way of shifting of the factory from Kovilpatti to Cuddalore, the assessee had the benefit of enduring advantage would be convincing. But, under the facts and circumstances of the case, it is not so. Hence, setting up of SIPCOT Industrial Estate near Cuddalore, which is purely an incidental advantage to the assessee, in our considered opinion, cannot be termed as an enduring advantage.
7.1 That apart, the labour unrest, which was a reason for shifting in the case of CIT v. Bimetal Bearings Ltd. (supra) and India Pistons Repco Ltd. v. CIT (supra), cannot be equated with that of the objection of the public in the present case, because the labour unrest in a factory is nothing but a part and parcel of the internal affair of the assessee’s industrial management, but, on the other hand, the objection of the public against letting out of sewage water and the consequential demand by the public for shifting of the factory is a matter of external pressure brought on the assessee’s industrial management.
7.2 There cannot be any second opinion that the shifting of the factory due to the labour unrest could definitely fall under capital expenditure as viewed by this Court in CIT v. Bimetal Bearings Ltd. (supra) and India Pistons Repco Ltd. v. CIT (supra). But, since the shifting of the factory, in the instant case, due to the objection of the public, as referred to above, is a quite different scenario constituting a special circumstance leading to an opposite conclusion, the ratio laid down in those cases is not applicable to the facts and circumstances of the present case.
7.3 We are also of the strong opinion that the expression ‘enduring advantage’ availed by the respondent/assessee by shifting the factory from Kovilpatti to Cuddalore, is a relative term with reference to the survival of the factory in the existing premises. Only if and when the survival in the existence place, but for the shifting is satisfied, the test of enduring advantage could be applied. If the very survival of the assessee factory in the existing place itself is at stake, the question of applying the test of enduring benefit does not arise, because capital expenditure and revenue expenditure, being not eteral verities-a true principle or belief especially one of fundamental importance, must need be flexible so as to respond to the changing economic realities of the business as well as the survival of the business itself. Therefore, the test of enduring benefit is not a certain and conclusive test and it cannot be applied blindly and mechanically without regard to the Artherton’s case (super).
8. That apart, this court in CIT v. Madura Coats Ltd. , held that mere improvement in convenience and increase in efficiency does not mean a permanent advantage which has to be regarded as falling within the capital field and the expenditure incurred for shifting of the administrative office was allowable as a revenue expenditure in the computation of business income.
9. For the reasons well explained above, the expenditure which has been incurred by shifting the factory from Kovilpatti, to Cuddalore is not merely for enduring advantage, but for the reason of its magnitude, viz., for the very survival of the factory and such an expenditure is to be held as a revenue expenditure, Accordingly, we hold that the expenditure incurred by the respondent/assessee by shifting the factory from Kovilpatti to Cuddalore, as rightly held by the Tribunal, is revenue expenditure.
10. Hence, finding no substantaial question of law, the appeal is dismissed.