Commissioner of Income Tax vs Madras Cements Ltd.

R. Jayasimha Babu, J.—The following three questions have been referred to us at the instance of the Revenue for the assessment year

1983-84.

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal erred in law in not holding that the cost of laying a cement

surfaced tennis court in Ramco Club, is capital expenditure and hence is not eligible for deduction in computing the total income ?

Whether, on the facts and in the circumstances of the case, the Tribunal erred in not holding that the expenditure incurred by the assessee on the

provision of common facilities in the employees'' lay-outs such as laying of roads, fixing of street lights, providing wells and the like, is a capital

expenditure and hence is not eligible for deduction in computing the total income ?

Whether the Appellate Tribunal erred in not holding that the guarantee commission paid by the assessee in the instant case formed part of the

cost of the relevant capital assets in view of the Supreme Court decision in Challapalli Sugar Ltd. Vs. The Commissioner of Income Tax, A.P.,

Hyderabad, , that all expenditure necessary to bring such assets into existence and put them in working condition will form part of the cost of

assets and therefore the guarantee commission is a capital expenditure ?

The assessee is a manufacturer of cement. It has undertaken maintenance of a club for the welfare of its employees. It also during the relevant

previous year had given moneys for the welfare of the labourers for the formation of roads, erection of street lights and provision of wells in a

house lay out that had been formed by labourers themselves. It had, in addition, paid guarantee commission for securing capital assets in those

years.

The Tribunal having held in favour of the assessee that the laying of surfaced tennis court in the tennis club as also monies given for laying of

roads and street lights in the lay out formed by the workmen is in the nature of revenue expenditure, the correctness of the Tribunal''s view has

been called into question before us.

The laying of cement surface on the tennis court in the club for the benefit of employees can hardly be regarded as capital expenditure. Surfacing

the cement court will not result in a permanent benefit, as such surfacing will have to be periodically repaired, as the cement surface will not last for

a long time without any damage, after continuous use of the same as a tennis court, and expenditure on it was rightly regarded by the Tribunal as

revenue expenditure.

The monies given by the asscssee to the employees to enable them to form roads and erect street lights, etc., in a housing colony formed by

them was money spent on the welfare of the employees. The land was not owned by the company. The amount given/spent was a subsidy or a

benefit given to the employees which was used for the purposes of erecting street lights, forming roads, etc. The expenditure so far as the company

was concerned was clearly in the nature of revenue expenditure.

So far as the guarantee commission is concerned, the commission which was paid by the assessee for securing guarantee on the strength of

which it could purchase relevant capital assets on payment by instalments was not an expenditure in the nature of a capital expenditure. The

Supreme Court in the case of Commissioner of Income Tax Vs. Siwakami Mills Ltd., , has held that the commission paid by the assessee to the

bank for securing the guarantee for the due payment of instalments payable by the assessee on the purchase of capital equipment on deferred

payment basis, was in the nature of revenue expenditure.

In the result, all the three questions are answered in favour of the assessee and against the Revenue.