JUDGMENT
T.U. Mehta, J.
1. In all these five matters, the question which is referred to us by the Tribunal is as under :
“Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in finding that the payment of the betterment charges to the Ahmedabad Municipal Corporation under the provisions of the Town Planning Act, 1954, made by the assessee was allowable as a deduction under section 37 of the Income-tax Act, 1961 ?”
2. For the sake of convenience, we shall refer to the facts of only one case, which is covered by Reference No. 9/74, and which relates to the assessee, Rohit Mills Ltd., Ahmedabad. In that case, the year of assessment with which we are concerned is 1962-63. The question relates to the admissibility or otherwise of the payment which is made by the assessee under section 66 of the Bombay Town Planning Act, 1954, which is hereinafter referred to as “the Act” as contribution towards the costs of town planning scheme. The facts of the case show that under the Bombay Town Planning Act, 1915, the Government declared its intention on October 1, 1949, to make a scheme within the limits of Ahmedabad Municipal Corporation. The scheme deals with the area covered by the village Khokhra Mehmedabad, a part of which is located within the limits of Ahmedabad Municipal Corporation. The draft scheme under the Act was sanctioned by the Government on October 26, 1949. Before the scheme could be finalised, the present Act, which is the Bombay Town Planning Act of 1954, replaced the Act of 1915. According to section 66 of the Act, the cost of the scheme is required to be met wholly or in part by a contribution to be levied by the local authority on each plot included in the final scheme calculated in proportion to the “increment” which is estimated to accrue in respect of such plot by the Town Planning Officer. Pursuant to the provisions of this section 66, the contribution which the assessee was required to pay came to Rs. 82,788. This amount was to be paid in 10 yearly instalments. For the accounting period in question, the assessee is found to have paid one such instalment of Rs. 8,278. This payment of contribution made as per provisions of section 66 of the Act is known as “betterment charges”. The case of this as well as other assessees of other references is that such charges made under section 66 of the Act, amount to revenue expenditure incurred wholly and exclusively for the purpose of running their business and are, therefore, allowable as proper deductions under section 37 of the Income-tax Act, 1961, while the contention of the revenue is that such charges being levied on the basis of the estimated increment in the value of the land covered by the town planning scheme have nothing to do with the business of the assessees and should, therefore, be treated as purely capital expenditure and hence are not allowable as proper deductions under section 37 of the Income-tax Act. As the assessee failed before the departmental authorities, they approached the Appellate Tribunal, which relying upon the decision given by the Supreme Court in Lakshmiji Sugar Mills Co. P. Ltd. v. Commissioner of Income-tax took the view that the expenditure in question was of revenue nature and hence admissible under section 37. Being aggrieved by this decision of the Tribunal, the revenue has preferred these references, in which the above-quoted question is referred to us for our opinion.
3. Before touching the arguments advanced by the learned advocates of the parties, it would be necessary to consider the relevant provisions o f the Bombay Town Planning Act, 1954, with a view to understand the real nature of the contribution, which is known as “betterment charges”. The Act is designed to see that the concerned local authority prepares a development plan for the entire area within its jurisdiction, and its object is “to ensure that twon planning schemes are made in a proper manner and their execution is made effective” (vide preamble). Two important features of the Act are : (1) the preparation of development plan; and (2) making and finalistion of the Town Planning Scheme. Chapter II of the Act contains provisions regarding the development plan while Chapters III, IV and VI contain provisions regarding making and finalisation of Town Planning Schemes. Reference to section 25 of the Act shows what particulars should be included in every draft scheme and reference to section 18 shows for what matters a Town Planning Scheme may make provisions. The wide sweep of development which these sections contemplate bears out the great potential advantages which the land covered by the scheme is likely to acquire on its finalisation. In State of Gujarat v. Shantilal Mangaldas, the Supreme Court had an occasion to consider the scheme of various provisions of the Act, which are relevant for our purpose in these references. Shah J., speaking for the court, has summarised the developmental impact of the Scheme in the following words in paragraph 12 of the reported judgment :
“In making a Town Planning Scheme the lands of all persons covered by the scheme are treated as if they are put in a pool. The Town Planning Officer then proceeds to reconstitute the plots for residential buildings and to reserve lands for public purposes. Reconstituted plots are allotted to the landholders. The reconstituted plots having regard to the exigencies of the scheme need not be of the same dimensions as the original land. Their shape and size may be altered and even the site of the reconstituted plot allotted to an owner may be shifted. The Town Planning Officer may lay out new roads, divert or close existing roads, reserve lands for recreation grounds, schools, markets, green belts and similar public purposes, and provide for drainage, lighting, water-supply, filling up or reclamation of low lying swamp or unhealthy areas or levelling up of land so that the total area included in the scheme may conduce to the health and well-being of the residents. Since the Town Planning Scheme is intended to improve the sauitary conditions prevailing in a locality, the owners of plots are required to manta in land open around their buildings. The object of the scheme being to provide amenities for the benefit of the residents generally, the area in the occupation of the individual holders of land is generally reduced, for they have to contribute out of their plots, areas which are required for maintaining the services beneficial to the community.”
4. It is thus obvious that the enforcement of a town planning scheme in a particular area greatly contributes to the development of that area and that the moment a particular scheme is finalised with regard to a particular area, the land comprised in that area acquires a good deal of potentiality in its market value.
5. The legal effect of a scheme finalised under the provisions of the Act is set out as under in section 53 :
“On the day on which the final scheme comes into force –
(a) all lands required by the local authority shall, unless it is otherwise determined in such scheme, vest absolutely in the local authority free from all encumbrances;
(b) all rights in the original plots which have been reconstituted shall determine and the reconstituted plots shall become subject to the rights settled by the Town Planning Officer.”
6. Clause (b) of this section makes it amply clear that ownership and other rights in the original plots, which have been reconstituted, come to an end on the date on which the final scheme is put into force and new rights as settled by the Town Planning Officer come into being. The provisions of this section thus emphasise that what is touched by the final scheme is the rights over realty.
7. Section 66, with which we are concerned in these matters, finds its place in Chapter VIII, which is about “Finance”. This Chapter beings with section 64 which states what sums shall be included in the cost of a town planning scheme. Section 66, which provides for the contribution towards the costs of a scheme under which the disputed “betterment charges” are charged, is in the following terms :
“66. (1) The cost of the scheme shall be met wholly or in part by a contribution to be levied by the local authority on each plot included in the final scheme calculated in proportion to the increment which is estimated to accrue in respect of such plot by the Town Planning Officer :
Provided that :
(i)(a) where the cost of the scheme does not exceed half the increment, the cost shall be met wholly by a contribution; and (b) where it exceeds half the increment to the extent of half the increment it shall be met by a contribution and the excess shall be borne by the local authority;
(ii) where a plot is subject to a mortgage with possession or to a lease the Town Planning Officer shall determine in what proportion the mortgagee or lessee on the one hand and the mortgagor or lessor on the other hand shall pay such contribution :
(iii) no such contribution shall be levied on a plot used, allotted or reserved for a public purpose or purpose of the local authority which is solely for the benefit of owners or residents within the area of the scheme; and
(iv) the contribution levied on a plot used, allotted or reserved for a public purpose or purposes of the local authority which is beneficial partly to the owners or residents within the area of the scheme and partly to the general public shall be calculated in proportion to the benefit estimated to accrue to the general public from such use, allotment or reservation.
(2) The owner of each plot included in the final scheme shall be primarily liable for the payment of the contribution leviable in respect of such plot.”
8. Sub-section (1) of this section contemplates contribution “in proportion to the increment, which is estimated to accrue” in respect of the concerned plot. What is this “increment” and how it is to be calculated is found by reference to section 65, which is as under :
“65. For the purposes of this Act the increments shall be deemed to be the amount by which at the date of the declaration of intention to make a scheme the market value of a plot included in the final scheme estimated on the assumption that the scheme has been completed would exceed at the same date the market value of the same plot estimated without reference to improvements contemplated in the scheme :
Provided that in estimating such values the value of buildings or other works erected or in the course of erection on such plot shall not be taken into consideration.”
9. Thus section 65 makes it clear beyond any doubt that “increment” which forms the basis of “betterment charges” is to be calculated on the basis of market value of the plot concerned and is arrived at by finding out the difference between the market value of that plot on the assumption that the scheme was completed on the date of declaration of the intention to make the scheme and the market value on that date without making any such assumption.
10. Section 67 of the Act contemplates adjustment of the amount of contribution with the increased or decreased estimated market value of the plot included in the final scheme. This section and the other which follow it, are regarding the adjustment of payments of compensation and contribution in different circumstances. It is prominently revealed from all these provisions that the contribution or “betterment charges” contemplated by section 66 is with reference to land and nothing else. However, special mention should here be made of the provisions contained in section 76 as both the parties have put reliance on this section in support of their contentions. This section provides as to how the recovery of the arrears under the Act can be made. It reads as under :
“76. (1) Any sum due to the local authority under this Act or any regulation made thereunder shall be a first charge on the plot on which it is due, subject to the prior payment of land revenue, if any, due to the Government thereon.
(2) Any sum due to the local authority under this Act or any regulation made thereunder which is not paid on demand on the day on which it becomes due or on the day fixed by the local authority shall be recoverable by the local authority by distress and sale of the goods and chattel of the defaulter, as if the amount thereof were a property tax due by the said defaulter.
(3) In lieu of the recovery of the dues of the local authority in the manner provided in sub-section (2) or after recovering part of the dues of the local authority in the manner provided in sub-section (2) any sum due or the balance of any sum due, as the case may be, by such defaulter may be recovered from him by a suit in any court of competent jurisdiction.”
11. Relying upon this section, the revenue contended that a statutory charge on land for the amount of contribution due to the local authority reveals that the payment of contribution is capital expenditure, while the assesses contended that the provisions regarding the recovery of the amount due by distress and sale of goods and chattel of the defaulter contained in subsection (2) of this section shows that the payment of contribution is revenue expenditure which is required to be incurred for saving the running business from being sold away in recovery proceedings.
12. These are the relevant provisions of the Act, which, prima facie, show that the “betterment charges” contemplated by section 66 are levied against the increased potential value of the lands covered by the scheme and not against the running business of the assessees.
13. The learned Advocate-General, who appeared on behalf of the assessees in these references, however, raised several contentions to show that in spite of the above referred provision of the Act, the charges in question are revenue charges, which are required to be paid on commercial expediency of keeping the assessees’ business running. He contended that the assessees were in trade for years before the scheme was finalised and hence the expenditure in question cannot be treated as the one incurred for setting up any new business but must be treated as the one which was necessary to keep the business running as otherwise the business assets of the assessees became liable to be sold by distress. Thus, according to the learned Advocate-General, the payment of “betterment charges” becomes an integral part of the running business of the assessees. He further pointed out that the method of calculating and quantifying the contribution under section 66 as well as the method of its reovery does not change the intrinsic nature of the charge which, according to him, is merely a charge for the part recovery of the costs incurred in the making of the scheme under the Act. He tried to make a point that the assessment of increment under section 65 is merely fictional and has no relation to the real appreciation in the value of land because, as a matter of fact, there is no appreciation either in the real or the potential value of land merely because a scheme is finalised. He pointed out that, generally, several years are taken before a final scheme is put into execution and hence till the scheme is executed, there is no rise in the value of lands covered by the scheme. At any rate, contended the learned Advocate-General, even if it is believed that there is a likelihood of rise in the potential value of these lands, the said rise is merely incidental and the payment of betterment charge is not made with the object of acquiring any such rise in the potential value of the land. Since, according to him, the payment is made under compulsion only with the object of saving the running business from being destroyed or damaged by distress sale, the real character of the payment is that of revenue.
14. We are not impressed by any of these contentions or the postulates on which they are based. We shall first deal with certain postulates on which these contentions are based and shall try to show how they are totally misconceived. These postulates are :
(1) That on finalisation of a town planning scheme, there is no increase in potential or real value of the land covered by the scheme;
(2) That increase in the value of the land, if any, is merely incidental and the assessees do not pay contribution with the object of acquiring such incidental increments; and
(3) That because for non-payment of the contribution business assets of the assessees are likely to be attached and sold away, the payment has an element of compulsion and hence it should be presumed to have been made for commercial expediency of keeping the business as a going-concern.
15. So far as the first postulate is concerned, we have already noted the magnitade of the impact which a final scheme makes on the development of the area comprised in it. The residents of the area get all the necessary amenities as a result of the scheme. Roads are laid out, provisions are made for drainage, lighting, water supply, schools, green belts low-lying areas are reclaimed, swamps and unhealthy areas are sought to be removed and plots become regular. Even if the execution of the scheme is delayed, the possibility of the residents of the area getting all these amenities would undoubtedly raise the potential value of the land in the market. A plot-holder thus gets an advantage in the from of increment in the value of the plot which he holds, and since this advantage is derived by him as a result of the finalisation of the scheme, the law contemplates that he should contribute parlty to the copst of the scheme. In the above referred case of State of Gujarat v. Shantilal Mangaldas, the Supreme Court has made this position abundantl yclear in the following words in paragraph 16 of the reported judgment :
“The rearrangement of titles in the various plots and reservation of lands for public purposes require financial adjustments to be made. The owner who is deprived of his land has to be compensated, and the owner who obtains a reconstituted plot in surroundings which are conducive to better sanitary living conditions has to contribute towards the expenses of the scheme. This is because on the making of a town planning scheme, the value of the plot rises and a part of the benefit which arises out of the unearned rise in prices is directed to be contributed towards financing of the scheme which enables the residents in that area to more amenities, better facilities and healtheir living conditions. For that purpose provision is made in section 65 that the increment shall be deemed to be the amount by which at the date of the declaration of intention to make a scheme, the market value of a plot included in the final scheme, estimated on the assumption that the scheme has been completed, would exceed at that date, the market value of the same plot estimated without reference to improvements contemplated by the scheme. By section 66 the cost of the scheme is required to be met wholly or in part by contribution to be levied by the local authority on each plot included in the final scheme calculated in proportion to the increment which is estimated to accrue in respect of such plot by the Town planning Officer.”
16. It was contended that the incremental estimate contemplated by section 65 is purely fictional and has no basis in reality. In support of this contention reliance was placed on the deeming clause of section 65. It is no doubt true that for estimating increment in the value of a plot section 65 incorporates a deeming clause but this deeming clause becomes inevitable if an estimate about increment is to be made on correct principles. The section seeks to make an estimate of the increment in value as a result of the scheme and, therefore, it takes care to eliminate the increment in the value which has resulted due to the factors other than the scheme. By this deeming clause, therefore, the increment does not become fiction. Increment is very much real when the scheme is finalised, because of the rise is an intangible advantage, some reasonable formula for its estimation has to be found out. That is does ne section 65. It would therefore, be wholly incorrect to say that the increment contemplated by section 65 is merely fictional. Thus, the first postulate of the contentions raised on behalf of the assessees is found to be of no substance.
17. So far as the second postulate is concerned, the contention was that the increase in the value of the land, if any, is merely incidental and the assessees do not pay contribution with the object of acquiring such incidental increments. Even this contention cannot be accepted, because, if it is once found that the lands comprised in a particular scheme do acquire increment in their potential value, the question whether the assessees concerned have desired that increment or not, is not material. It is in view of the statutory provisions of the Act that they have to make the contribution and when these statutory provisions contemplate that contribution has to be paid in consideration of the increment, it becomes irrelevant whether the assessees desired the said increment in the value of their lands.
18. The third postulate that the payment of contribution was made with view to see that the business of the assessees was kept running, is rather self-defeating, inasmuch as it is based on the assertion of the assessees’ right to conduct their business and not on their right to produce profits in the conduct of their business. The courts have always made a distinction between the payments made for acquiring or preserving a right to conduct a business and those made for the purpose of producing profits in the conduct of a business. While the former type of payment is considered to be an expenditure of capital nature, the latter type is considered to be a payment of revenue nature, because the former type of expenditure is for the preservation of income-earning set up, while the latter type of expenditure is for producing or earning income from the said set up. In Tata Hydro-Electric Agencies Ltd. v. Commissioner of Income-tax, the Privy Council has formulated this principle in the following words :
“In short, the obligation to make these payments was undertaken by the appellants in consideration of their acquisition of the right and opportunity to earn profits, that is, of the right to conduct the business, and not for the purpose of producing profits in the conduct of the business.”
19. A similar distinction is made by the High Court of Australia in Sun Newspapers Ltd. v. Federal Commissioner of Taxation. Dixon J. has in that case pointed out this distinction in the following words at pages 359 and 360 of the report :
“The distinction between expenditure and outgoings on revenue account and on capital account corresponds with the distinction between the business entity, structure or organisation set up or established for the earning of profit and the process by which such an organisation operates to obtain regular returns by means of regular outlay, the difference between the outlay and returns representing profit or loss.”
20. Proceeding further, it is observed in this judgment by the same judge as under :
“As general conceptions it may not be difficult to distinguish between the profit yielding subject and the process of operating it. In the same way expenditure and outlay upon establishing, replacing and enlarging the profit yielding subject may in a general way appear to be of a nature entirely different from the continual flow of working expenses which re or ought to be supplied continually out of the returns or revenue. The latter can be considered, estimated and determined only in relation to a period or interval of time, the former as at a point of time. For, the one concerns the instruments for earning profits and the other the continuous process of its use or employment for that purpose.”
21. Thus even if it is believed that the assessees have paid betterment charges to protect their business set up, which is a “profit earning apparatus”, the expenditure is on capital account and surely not an expenditure for the purpose of producing profits in the conduct of their busienss.
22. But, apart from this, the argument that because in default of a particular payment, the business assets were liable to be sequestered, the expenditure should be treated as having been made for the purpose of business, has been twice rejected by the Supreme Court in the case of Commissioner of Income-tax v. Malayalam Plantations Ltd. and Bombay steam Navigation Co. (1953) P. Ltd. v. Commissioner of Incom Income-tax. In Malayalam Plantations P. Ltd., the Supreme Court observed that the fact that on its default, if any, in the payment of dues, the revenue might realise amounts from the business assets was a consequece of the default of the company in not discharging it expenditure incurred in the conduct of the business. In Bombay Steam Navigation Co. (1953) P. Ltd., the following observation were made by the Supreme Court :
“The assessee-company urged that the payment of interest was revenue expenditure for the purposes of the business of the assessee-company, because in the event of failure to pay interest accruing due, the Scindias would enforce the lien, and the business of the assessee-company would come to an end and that in any event the expenditure was necessary on grounds of business expediency and incurred in order directly or indirectly to facilitate the carrying on of business. If the principal or the interest accruing due was not paid, the Scindias had undoubtedly a right to enforce their lien against the assets of the assessee-company’s business, but that cannot be regarded as a ground for holding that the expenditure fell within section 10(2)(xv). Even in respect of a liability wholly unrelated to the business, it would be open to a creditor to sequester the assets of the assessee’s business and such sequestration may result in stoppage of the operation of the business. Expenditure for satisfying liability unrelated to the business, even if incurred for avoiding danger apprehended or real to the conduct of the business, cannot be said to be revenue expenditure. Nor can it be said that because a liability has some relation to the business which is carried on, expenditure incurred for satisfaction of such liability is always to be regarded as falling within section 10(2)(xv).”
23. Thus, all the three postulates on which the edifice of the arguments advanced on behalf of the assessees is based, are found to be unsustainable.
24. A catena of decisions, both English and Indian, can be cited for discussing the question whether a particular expenditure partakes of the character of capital or revenue. Instead, we would only point out the decision of the Supreme Court in Assam Bengal Cement Co., Ltd., wherein most of the decisions on the subject are discussed, and the famous of Viscount Cave L.C. in Atheron v. British Insulated & Helsby Cabe Cables Ltd., that “…. 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,….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 revene but to capital”, is approved by the Supreme Court. Since in these references we find that the betterment charges have been paid by the assessees under section 66 for the enduring benefit which their land lands have received as a rsult of the finalisation of the scheme, and since these charges have no connection either with their running business or with the production of profits, it must follow that these cha charges constitute a capital expenditure. The mere fact that this expenditure is incurred while the business is going on is, by itself of no consequence. This will be clear from the following observations of the Supreme Court in the above referred decision in Assam Bengal Cement Co., Ltd. The Court has said :
“The question however arises for consideration where expenditure is incurred while the business is going on and is not incurred either for extension of the business or for the substantial replacement of its equipment. Such expenditure can be looked at either from the point of view of what is acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure. The source or the manner of the payment would then be of no consequence.”
25. Many decisions were cited at the Bar on behalf of the assessees. We have found that they are not relevant to the facts of these references. We need not, therefore, discuss them in detail. The decisions of the Supreme Court in Malayalam Plantations Ltd., and Coelho’s case were relied upon but they are of no use in these references as what is held in these cases is that “interest paid on the amounts debited to the capital account is revenue expenditure as, by payment of interest, no new asset was acquired.” The decision of the Supreme Court in Indian Cements Ltd. v. Commissioner of Income-tax was also relied upon. There it was held that the expenditure of Rs. 84,633 towards stamp duty, registration fees, lawyer’s fees, etc., incurred for obtaining loan of Rs. 40,00,000 was revenue expenditure and the act of borrowing the said amount was incidental to theee carrying on of business. This decision hgas obviously no application to the fats of these references.
26. The assessees had also placed reliance upon the decision given by the Supreme Court in Gotan Lime Syndicate v. Commissioner of Income-tax. There the question was about the nature of the expenditure made in playing royalty including the dead rent. IT was found as a fact that there was no payment once and for all and no lump sum payment was ever settled or paid; there was only an annual payment of royalty or dead rent. Giving reasons for this finding, the court further observed that the reasons why royalty had to be allowed as revenue expenditure was the relation which it had to the raw materials to be excavated or extracted, because the more you take, the more royalty you pay. Even this decision has, therefore, no relevance to the facts of the present reference.
27. Next decision was Commissioner of Income-tax v. Coal Shipment P. Ltd. There the payment was made to ward off competition in business to arival. It was held that such payment would constitute capital expenditure if the object of making that payment is to derive an advantage by eliminating the competition over some length of time and the same result would not follow if there is not certainty of the duration of the advantage and the same could be put to an end at any time. It was observed in this decision by the Supreme Court that although an enduring benefit need not be of an everlasting character it should not be so transitory and ephemeral that it can be terminated at any time at the volition of any of the parties. So far as the facts of the present references are concerned, it is not possible to say that enduring advantage which the lands of the assessees have obtained, is not of ever-lasting character or is either transitory or ephemeral. Therefore, even this decision has no application to the facts of these references.
28. The last decision on which reliance was placed was the one given in Indian Aluminium Co., Ltd. v. Commissioner of Income-tax. The payment, with which the court was concerned in that case, was the payment of wealth-tax. The court held that this payment should be treated under revenue account as it was made for the purpose of business in the capacity of the assessee as a trader. Obviously, even this decision had no application to the facts of these references.
29. The Tribunal has, as already noted above, based its decision on the decision given by the Supreme Court in Lakshmiji Sugar Mills Co. P. Ltd. The assessees have rightly not placed any reliance upon this decision, because it was on the facts of the case that the Supreme Court came to the conclusion that the expenditure was incurred for the purpose of facilitating the running of motor vehicles and other means employed for transportation of sugarcane to the assessee’s factories and was incurred for running the business and working it with a view to producing profits without the assessee gaining any advantage of an enduring benefit to itself. The facts of the case were that the assessee was a private company carrying on business of manufacturing and selling sugar. It paid to the cane development council certain amounts by way of contribution for the construction and development of roads between the various sugarcane-producing centers and the sugar factories of the assessee. This expenditure was incurred under a statutory obligation for the development of roads which were originally the property of the Government and remained so even after the improvement had been done. There was no finding that the roads were to be altogether newly made and that the assessee would get an enduring benefit from those roads. On these facts, the Supreme Court observed as under :
“In the present case, apart from the element of compulsion, the roads which were constructed and developed were not the property of the assessee nor is it the case of the revenue that the entire cost of development of those roads was defrayed by the assessee. It only made certain contribution for road development between the various cane producing centers and the mills. The apparent object and purpose was to facilities the running of its motor vehicles or other means employed for transportation of sugarcane to the factory. From the business point of view and on a fair appreciation of the whole situation the assessee considered that the development of the road in question could greatly facilitate the transportation of sugarcane. This was essential for the benefit of its business which was of manufacturing sugar in which the main raw material admittedly consisted of sugarcane. These facts would bring it within the second part of the principle mentioned before, namely, that the expenditure was incurred for running the business or working it with a view to produce the profits without the assessee getting any advantage of an enduring benefit to itself.”
30. Obviously this decision would be of help to the assessees in these references, because, here, the assessee have obtained advantage of enduring benefit to themselves in the form of the enhanced potential value of the lands which they possess. In our opinion, therefore, the Tribunal was not right in relying upon this decision of the Supreme Court for the purpose of deciding cases.
31. On the contrary, we find two other English decisions, the facts of which were rather more favourable to the assessees than the facts of the present references. In Bean v. Doncaster Amalgamated Collieries Ltd., a colliery company was required by a local Drainage Act to execute or pay for works (remedial works) necessary to obviate or remedy any loss of efficiency in a drainage system due to subsidence caused by the company’s workings. At a certain stage in the mining of a particular seam, subsidence which would cause damage to the drainage system was inevitable if mining continued, so working ceased After some years, in 1937, the company investigated the possibility of continuing the workings and prepared a scheme of remedial work, which would involve considerable expenditure, to enable this to be done. Before this could be worked out in detail the drainage board concerned put forward a general drainage improvement scheme for the district, the effect of which was, inter alia, to eliminate the necessity for the remedial works contemplated by the company, and proposed that the company should bear a proportion of the cost approximately equivalent to the cost of the works it would have carried out independently. After the negotiations the company agreed, by an agreement dated September 28, 1939, to pay the dramage board a certain sum towards the cost of the general scheme by sixty half yearly instalments. On these facts the company contended that the payments made under the 1939 agreement were made in respect of its statutory obligations, that no capital asset had been acquired and that the payments were admissible deductions in computing its profits for income-tax purposes. The Crown contended that the payments were not made in respect of remedial expenditure or in discharge of the company’s statutory obligations but were contributions towards a general scheme of drainage improvement and resulted in the acquisition of a capital asset. It was ultimately held that the payments to the drainage board were capital payments and, accordingly, not admissible deductions in computing the company’s profits income-tax purposes. Scott L.J. taking this view observed that the agreement with its Pounds 39,000 expenditure thus procured for the respondents two “enduring advantages”. The first was in effect a large new acquisition of workable coal, for the company’s proprietary rights had no commercial reality, unless the surface draninge was maintained in accordance with the Acts. The second was permanent immunity from all the continuing expenditure entailed by the obligations of those Acts. Each of these two considerations was considered by Scott L.J. as sufficient by itself to constitute the expenditure in question a capital and not a revenue items in the respondent’s account.
32. The facts of the above referred decision show that the expenditure in question was incurred by the assessees mainly for running business and looking to the nature of that expenditure and the advantages which were acquired by the assessees, it was held that it was advantage of enduring nature. In our case, the expenditure is not found to have been made for running the business but for appreciation in the value of the land which the assessees possess.
33. Another case is of Ounsworth v. Vickers Ltd. Facts of that case were that the works of a company carrying on the business of ship-builders and engineers were approached by a channel. It was the duty of the harbour authorities to keep this channel dredged, but they neglected to do so and the channel consequently began to silt up. As the harbour authorities were not in a position to find the funds necessary for the complete restoration of the channel, a cheaper scheme was devised, involving a lesser depth of dredging and the provision of a deep water berth, to which the company and the harbour authorities contributed, the company’s contribution being the greater. If this expenditure had not been incurred by the company it would have been impossible for them to deliver a battle cruiser which was then in course of completion at their works. The company claimed that this expenditure should be deducted in ascertaining their liability under Schedule D. It was held that the expenditure was capital expenditure and was not an allowable deduction in the computation of the company’s profits for income-tax purposes.
34. Looking to these decisions, therefore, we have no doubt in our mind that the Tribunal was not justified in treating the payment of “betterment charges” as revenue expenditure. Our answer to the question, which is posed to us in all these referencesais in the neg ative and in favour of the revenue these references are accordingly disposed of. It is ordered that the respondent-assessees shall bear their own costs and pay the costs of the department.
