JUDGMENT
S.K. Jha, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal, Patna Bench, has referred the following question to this court:
“Whether, on the facts and in the circumstances of the case, the ‘protection charge’ incurred by the assessee-company in digging a trench was revenue or capital expenditure?”
2. The relevant facts necessary for the disposal of this reference are very short. The assessee runs a group of collieries called Centulia seams. In the year in question, namely, assessment year 1962-63, corresponding to the accounting year 1961-62, fire broke out in the adjoining seam, and the assessee was required by the Coal Board in its own interest and for the protection of its seams to dig a trench so that the fire may not extend to the seams in question. In digging this trench, which was 500 yards in length and in breadth 40 feet at its bottom and 80 feet at its surface, the total expenditure incurred by the assessee was about Rs. 27,000. Out of this amount, the Coal Board sanctioned an amount of Rs. 11,398, and to that extent the assessee was reimbursed, and the balance of the expenditure incurred had to be borne by the assessee. This balance amount was claimed by it as revenue expenditure under the head” protection charge “. The Income-tax Officer rejected this claim, holding that the benefit accruing to the assessee being of an enduring nature, the expenditure under this head could not be brought within the term” revenue expenditure ” but as an item of capital expenditure. On appeal by the assessee, the Appellate Assistant Commissioner affirmed the decision of the assessing authority. On further appeal to the Tribunal, the Tribunal held that from the facts of the present case it was clear that it was in the interest of the assessee itself to protect its mines and it had to incur the expenditure whether the Coal Board sanctioned it or not. The Tribunal further held that there was a threat to the coal seams and it was necessary to incur this expenditure. On having been asked by the Commissioner of Income-tax, the Tribunal has framed the question of law aforesaid for answer by this court.
3. The learned standing counsel for the department submitted that the decision of the Supreme Court in Commissioner of Income-tax v. Kirkend Coal Co., (1) [1970] 77 ITR 530 (SC) affirming the decision of this court in Commissioner of Income-tax v. Kirkend Coal Co., [1966] 60 ITR 537 (Pat) was quite distinct from the point in issue in the present case and, therefore, the Tribunal was not right in following the principle enunciated in that case for the purpose of giving relief to the assessee in the instant case. There may be some substance in this objection of the learned standing counsel, for I must state at the outset that in the case of Kirkend Coal Co. the finding of the Tribunal on the question involved was the nature of the expenditure incurred by the assessee in that case over an operation called stowing and the Appellate Tribunal in that case has found as a fact that” stowing is an operation carried out in the process of extraction of coal and unless it is carried out extraction of coal is not possible……” And one of the reasons why the Supreme Court upheld the view of the High Court as also that of the Appellate Tribunal in that case was this finding of fact recorded by the Tribunal. That case, therefore, is no direct authority for the point which has arisen in the present case. The question, therefore, has to be decided on the general principles regarding the nature of expenditure — whether, in the circumstances of the present case, on the well-settled principles, the expenditure in question can be held to be of revenue nature or of capital nature. It is well-settled that the expenditure on a scheme or an item which increases the value of a capital asset by an advantage of enduring benefit is a capital expenditure. That is to say, the expenditure is to be attributed, to capital if it be made with a view to bringing an asset or advantage of enduring nature into existence. If, for instance, the expenditure is incurred for the acquisition of property or rights of an enduring character, the possession of which is a condition of carrying on the trade, the outlay will be held to be an expenditure of capital nature. But it is equally well-settled that in considering whether an item of expenditure is of a capital or revenue nature, one must consider the nature of the trade, the ordinary process of business, the object with which a particular item of expenditure is incurred and other like things. In the case of Morgan (Inspector of Taxes) v. Tate & Lyle Ltd., [1954] 26 ITR 195 ; 35 TC 367 (HL). the majority decision of the House of Lords held that a company engaged in sugar refining, having incurred expenses in a propaganda campaign to oppose the threatened nationalisation of the industry, the expenditure was allowable as revenue expenditure, since its object was to prevent seizure by the State of the company’s assets. This decision of the ‘ House of Lords has since received approval and has been relied upon by the Supreme Court in the case of Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax, [1967] 63 ITR 207 (SC). In this case expenditure on civil litigation for protecting the business was held to be admissible by the Supreme Court as revenue expenditure. Similarly, in the case of Commissioner of Income-tax v. Malayalam Plantations Ltd., [1964] 53 ITR 140 (SC) stress was laid by the Supreme Court on the scope of the phrase “for the purpose of the business”, and it was emphasised that the expression” for the purpose of the business” is wider in scope than the expression” for the purpose of earning profits”. Its range is wide, it may take in not only the day to day running of a business but also the rationalisation of its administration and modernisation of its machinery, it may include measures for the preservation of the business or for the protection of its assets or property from expropriation, etc. It may comprehend many other acts incidental to the carrying on of the business. If decisions on this question are examined and analysed, one thing, in my view, will certainly emerge. If at the time of acquisition of the capital assets, for instance, some protective measure is taken and the value of the capital asset is sought to be appreciated by voluntarily investing over certain items of expenditure by way of a protection for preservation of the capital assets such measures resulting in an advantage of enduring nature, then such an outlay must fall within the term “capital outlay”. But, if in a particular year there is an imminent threat of either seizure or destruction of property by it of a part of the capital asset, and it is necessary to incur expenditure for protection, even though of the capital assets, for that particular year for the purpose of carrying on the business, then irrespective of the amount expended for the period during which the benefit may endure, such an item of expenditure must fall within the term “revenue expenditure”. The instant case is one which, in my view, falls within the latter class. Fire having broken out in the seams adjacent to the assessee’s coal seams, and the coal seams of the assessee being under an imminent threat of extinction by fire, in order to ‘ensure the running of business or trade of the assessee, namely, extraction of coal from the seams in question, it was necessary to protect the assets from devastation on account of such fire and, therefore, the digging of the trench by way of a protective measure can in no way be said to be a part of any capital outlay, even though the benefit so accruing may be of some enduring nature.
4. The learned standing counsel for the department placed reliance upon two decisions of the Supreme Court, viz., Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax, [1955] 27 ITR 34 (SC) and K.T.M.T.M. Abdul Kayoom v. Commissioner of Income-tax, [1962] 44 ITR 689 (SC) and a decision of the Madras High Court in M. Subbiah Nadar v. Commissioner of Income-tax, [1953] 23 ITR 58 (Mad). In the case of Assam Bengal Cement Co. Ltd.1 Bhagwati J. quoted with approval a passage from the Full Bench judgment of the Lahore High Court in Benarsidas fagannath, In re [1947] 15 ITR 185 (Lah) [FB];
” ‘It is not easy to define the term “capital expenditure” in the abstract or to lay down any general and satisfactory test to discriminate between a capital and a revenue expenditure …. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment . . . You do not use it “for the purpose of” your concern, which means, for the
purpose of carrying on your concern, but you use it to acquire the concern.’ ”
5. Having thus quoted, the learned judge himself propounds the law at page 45 of the report in these terms:
“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 the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure.”
6. It will thus be seen that even in the case relied upon by the learned standing counsel the Supreme Court has laid emphasis on the aim and object of the expenditure for the purpose of determining its character, and keeping this test in view it was held in that case as also in the case of Abdul Kayoom that the items of expenditure in question were not revenue expenditure. As a matter of fact in Abdul Kayoom’s case the assessee had sought to incur expenditure for the purpose of obtaining monopoly rights in fishery, and it was on the basis of that fact that the Supreme Court held that it was for the purpose of acquisition of a capital asset.
7. In the Madras case, relied upon by the learned standing counsel, again it was held that the amount in question spent for acquiring capital assets had none of the elements of “rent” nor even of “premium” and as such the payment of those sums could not be treated as rent or revenue expenditure.
8. As already stated above, so far as the present case is concerned, I may re-emphasise that the finding of the Tribunal that the expenditure in question was incurred for the purpose of protection of the capital asset without which the assessee. could not carry on the business in question in the year concerned is sufficient to bring this item of expenditure within the term ” revenue expenditure “.
9. For the reasons stated above, I would answer the question referred to us thus : On the facts and in the circumstances of the case, the "protection (sic)arge" incurred by the assessee-company in digging a trench was revenue expenditure. The question is thus answered in favour of the assessee and against the department. The assesses will be entitled to the costs of this reference. The hearing fee is assessed at Rs. 100. Untwalta, C.J 9. I agree.