BALASUBRAHMANYAN J.


The assessee in this case is M/s. India Pistons Repco Ltd., Madras. It had its factory at Sembiam near Madras. Owing to incessant labour trouble, the assessee decided to shift its factory to safer place. It chose Kakkalur, 36 km. away, from Madras City. To this place it shifted its entire existing factory unit from Sembiam. In the process, the assessee incurred a total expenditure of Rs. 60, 016 towards shifting charges. The assessee claimed this amount as an item of allowable revenue expenditure in its business. The ITO, however, disallowed the amount, holding that the amount represented capital expenditure. On appeal, the Income-tax Appellate Tribunal went into the break-up of the shifting expenses, which amounted to Rs. 60, 016. It found that Rs. 12, 490 represented expenditure incurred by the assessee towards lorry transport charges for transporting raw materials and stores from the old factory site at Sembiam to the new factory site at Kakkalur. A sum of Rs. 6, 267 represented the insurance premium paid in connection with the transit of consumable stores, machinery spares, finished products, raw materials, processed stocks, etc. The Tribunal held that the expenditure incurred by the assessee under these two heads must be allowed as items of revenue expenditure which, in any case, would have been incurred in the normal course of trade. As for the balance claimed by the assessee as an admissible deduction towards shifting expenses, namely, Rs. 41, 269, the Tribunal held that it represented charges for dismantling the old factory at Sembiam and transporting the plant and machinery to the new site at Kakkalur. According to the Tribunal, this part of the outgoing represented only capital expenditure. In coming to this conclusion, they followed the decision of the Supreme Court in Sitalpur Sugar Works Ltd. v CIT [1963] 49 ITR(SC) 160 The assessee then demanded a case from the Tribunal against the disallowance of Rs. 41, 269 as capital expenditure. The Tribunal has since stated a case on the following question of law

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in disallowing a portion of the dismantling and shifting expenditure on the ground that it represented capital expenditure ?" *


We have earlier referred to the decision of the Supreme Court in Sitalpur Sugar Works Ltd. v. CIT [1963] 49 ITR(SC) 160, which the Tribunal had followed in rendering their decision. In that case, the assessee was a company which carried on the business of manufacturing sugar. Originally, the sugar factory of the assessee was situated at place called Sitalpur. That place suffered from the ravages of floods and, in consequence, sugarcane of good quality in sufficient quantity became unavailable in that place. With a view to improving the business the assessee shifted the factory from Sitalpur to another place called Garaul. In the process of dismantling the plant and machinery and transporting them to Garaul and erecting them in the new site, the assessee incurred an expenditure of Rs. 3, 19, 766. This was claimed as an item of admissible expenditure. The Department disallowed the expenditure as a capital outlay. When the matter was taken before the Supreme Court it was held by that court that the expenditure must be regarded as one incurred for putting up its factory in a better site and that being so, the expenditure must be regarded as capital in nature. The Supreme Court also observed that the expenditure was of a kind incurred for the purpose of obtaining an advantage which was of enduring benefit to the assessee's trade, and hence bore a capital character. The Supreme Court referred, in the course of their judgment, to the well-known decision of Viscount Cave in Atherton v. British Insulated and Helsby Cables Ltd.[1925] 10 TC 155 (HL)


In our opinion, the decision of the Supreme Court in Sitalpur's case [1963] 49 ITR(SC) 160, directly applies to the present case. There can be no doubt that where plant and machinery are erected for the first time, any expenditure incurred in respect thereof is decidedly capital in nature, since it is for the acquisition of fixed assets which form the very source from out of which income earning transactions are to be operated upon. The same will be the position where the assessee incurs expenditure for purchasing outright an existing factory for the purpose of running it himself. The outlay on purchase of fixed capital equipment would also be capital expenditure. Again, in a case where there is a substantial expansion of the fixed capital equipment by way of addition to an existing factory, the expenditure involved in putting up additional plant or machinery would again be capital expenditure. In Sitalpur's case [1963] 49 ITR(SC) 160, the Supreme Court observed that they could not find any difference between expenditure incurred for acquiring an additional plant, which is capital expenditure, and an expenditure incurred in dismantling and refitting the existing plant at a better site. In all these cases, it may be verily said that the expenditure subserves a benefit of an enduring kind, which is often regarded as the hallmark of capital expenditure. We accordingly hold that the Tribunal had come to a correct conclusion in disallowing the expenditure incurred by the assessee in this case in dismantling and shifting the factory from Sembiam to Kakkalur as capital expenditureMr. Subramanian, learned counsel for the assessee, submitted that recent case-law discloses a departure from the earlier trend of decisions in this country which have had as their model the dictum of Viscount Cave in Atherton's case [1925] 10 TC 155 (HL). Learned counsel submitted that the present line of thinking on the subject of capital versus revenue expenditure does not accept, without qualification, Viscount Cave's dictum that whatever brings into existence an asset or an advantage of an enduring benefit must be regarded as capital expenditure. Learned counsel referred to a very recent decision of our Supreme Court in Empire jute Co. Ltd. v. CIT, in support of his submission


We have perused the judgment of the Supreme Court in the Empire jute case. We may observe that Viscount Cave himself did not purport to lay down any hard and fast rule in regard to the presence of enduring benefit as a test of capital expenditure. The passage oft-quoted from his judgment is as follows (p. 192 of I 0 TC)


"...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." *


The broad tendency of subsequent decisions both in Britain and in this country was to adopt the test of enduring benefit laid down by Viscount Cave as an absolute test, for finding out the nature of the expenditure and distinguishing between revenue and capital items. However, close reading of the passage from the Atherton's decision [1925] 10 TC 155 (HL), would show that the learned Lord Chancellor did not intend to lay down any universal proposition or principle by laying down enduring benefit as an absolute test. It would have been noticed that Viscount Cave in a bracketed parenthesis, makes an exception of certain kinds of expenditure which might bring about enduring benefit to trade and yet have to be regarded as non-capital expenditure, or revenue expenditure, owing to the presence of special circumstances. To cite an example, where machinery or other fixed capital equipment is repaired, the expenditure on such repair would be an item of revenue expenditure, even though the effect of the repair may be enduring, as when we say "A stitch in time saves nine" It is this parenthesis in Viscount Cave's judgment which has been highlighted and brought out in bolder relief in the recent judgment of the Supreme Court in Empire Jute case. Bhagwati J., speaking for the Supreme Court in that case, referred to Atherton's case [1925] 10C 155 (HL) and proceeded to observe as follows (p. 10 of 124 ITR)



"It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense, and it is only where the advantage is in the capital field that the expenditure would be disallowable on the application of this test." *


The observations of Bhagwati J. would show that enduring benefit, as a test of disallowance of capital expenditure, would hold good in all cases where the advantage derived is in the capital account or "capital field" as he phrased it. In the present case, we have already referred to certain examples of expenditure leading to enduring benefit or advantage, i.e., when money is expended for putting up a factory for the first time, or for purchasing an exist

ing factory as a going concern, or for putting up a substantial addition to the existing fixed assets of a factory or other industrial establishment. In all these cases, it can hardly be denied that the enduring benefit is a benefit in the capital field, to borrow the phrase from Bhagwati J. This is because the day-to-day operations of manufacturing business cannot be conceived without the pre-existence of a factory or other fixed asset, which is the very source for carrying on the business and earning profits. Although, the Sitalpur case [1963] 49 ITR(SC) 160, is not expressly referred to in the Empire jute decision[1980]124 ITR I (SC), we have no doubt whatever that uprooting a factory and re-establishing it in a new place must be held to subserve an enduring advantage in the capital field, in the sense spoken of by Bhagwati JHaving regard to the consideration aforesaid, we answer the question referred to us in the present case in the affirmative and against the assessee. There will be no order as to costs.