Commissioner of Income Tax vs Shri Digvijay Cement Co. Ltd.

B.K. Mehta, J.—In all four questions have been referred to us; two at the instance of the Commissioner and two at the instance of the assessee. The questions are as under: By the Commissioner:

"1. Whether, on the facts and in the circumstances of the case, the pontoons are covered by the expression ''ship'', and therefore, are entitled to development rebate at a higher rate of 40 per cent instead of 25 per cent on the basis of plant?

Whether, on the facts and in the circumstances of the case, the Tribunal has been right in law in allowing relief u/s 80J of the income tax Act, 1961, in respect of Seeka 4th Expansion Unit, Bombay Cement Mills, 1st Expansion and Asbestos Products Division First Expansion Unit?"

By the assessee :

"3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure of Rs. 78,000 being fees paid to Indopal British Consulting Enterprises was not a revenue expenditure?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing relief u/s 80M on the net amount of dividend and not on the gross amount of dividend?"

The necessary relevant facts which give rise to these questions are as under: The assessment year under reference is 1971-72. The assessee is a limited company, which carries on the business, inter alia, of manufacturing and sale of cement. It has got its factory situated at village Seeka, near Jamnagar. The assessee claimed before the ITO development rebate at the rate of 40 per cent on pontoons, since in the submission of the assessee-company, the pontoons, for all intents and purposes, were ships. This claim did not find favour with the ITO, who was of the opinion that pontoons could not be treated as ships, since they are incapable of movement by themselves because they have no engines. He, therefore, allowed the development rebate at the rate of 25 per cent instead of 40 per cent. treating pontoons as ''plant''.

Another claim which has given rise to question No. 2 in the present case (at the instance of the Commissioner) relates to the relief u/s 80J of the income tax Act, 1961 (''the Act'') in respect of Seeka factory, Fourth Expansion Unit, Bombay Cement Mills, First Expansion and Asbestos Products Division First Expansion Unit (Bombay Cement Mills First Expansion Unit). The ITO held that these units were not qualified for the relief u/s 80J since they are merely the expansion of the existing units. The assessee, therefore, carried the matter in appeal before the Appellate Commissioner who, following his decision in respect of the earlier assessment years, held that all these three expansion units are entitled to relief u/s 80J. The revenue carried the matter in appeal before the Tribunal from the order of the Appellate Commissioner allowing the relief in respect of the three units. It should be recalled at this stage that the Tribunal had, by-its earlier order of 16-8-1965 in appeal preferred by the department in respect of the allowance of the same relief for the assessment years 1964-65 to 1970-71, affirmed the view of the Appellate Commissioner that the assessee-company was entitled to the relief u/s 80J in respect of Bombay Cement Mills First Expansion Unit, since the appeal which was preferred by the department was by way of a test case in respect of this unit only. This view of the Tribunal in respect of the assessment years 1964-65 to 1970-71 was confirmed by this Court in CIT v. Shree Digvijay Cement Co. Ltd. [1983] 144 ITR 532. In that state of affairs, when the department preferred the appeal in respect of all these three units for the assessment year with which we are concerned, namely, 1971-72, the Tribunal affirmed the view of the Appellate Commissioner that the assessee-company is entitled to the relief u/s 80J, in respect of all the three units on the concession of the parties that the earlier decision of the Tribunal holding that the assessee-company is entitled to section 80J relief in respect of Bombay Cement Mills First Expansion Unit would also govern the claim arising in respect of all the three units in the assessment year 1971-72. It is in this fact situation that the Commissioner sought reference of the two questions and the questions set out above were referred to us for our opinion.

As regards the two questions referred to us at the instance of the assessee, a few relevant facts be noticed again. A question arose in the course of the assessment of the year under reference in respect of admissibility of the expenses to the tune of Rs. 78,000 paid by the assessee-company to Indopal Ltd., a consulting enterprise, for execution of industrial projects, for preparing feasibility report, for ship-yard, etc. The assessee claimed this as a revenue expense which claim did not find favour with the ITO, who held that it was of a capital nature, inasmuch as it was incurred for the purposes of setting up of ship-yard project, which of course did not materialise and was not laid out wholly and exclusively for the purposes of the business. The assessee, therefore, carried the matter in appeal before the AAC, where it was contended on behalf of the assessee-company that it owned and engaged a large fleet of crafts for the movement of raw materials, sea-sand and also for loading of finished products into the steamers, and in order to increase the maneuverability of the fleet, the consultancy firm was engaged for studying the feasibility of setting up of ship-yard, and, therefore, it was laid out in the course of business and should be allowed as revenue expenses. The Appellate Commissioner accepted this contention and held that the impugned amount was allowable as revenue expenditure and, therefore, directed the ITO to allow the same. The department carried the matter in appeal before the Tribunal which, following the decision of the Supreme Court in Sitalpur Sugar Works Ltd. Vs. Commissioner of Income Tax, Bihar and Orissa, and the decision of the Delhi High Court in State Trading Corporation of India Ltd., New Delhi Vs. Commissioner of Income Tax, , held that since the impugned expenditure was directly linked with the construction of ship-yard, it was incurred with a view to obtain advantage of enduring nature and, therefore, the ITO was right in disallowing it as revenue expenditure. The assessee has, therefore, sought the reference in respect of this claim which has been granted as question No. 3 at the instance of the assessee.

The second question which has been referred to us at the instance of the assessee arose in the following circumstances:

Before the ITO, the assessee claimed relief u/s 80M of the Act in respect of its dividend income on the gross basis, namely, Rs. 15,76,971, which claim did not find favour with the ITO who granted the relief on the basis of Rs. 12,23,279. The assessee, therefore, carried the matter in appeal before the AAC who accepted the appeal and directed to grant the relief on gross basis. The Appellate Commissioner while allowing the appeal in respect of the assessment year 1971-72 followed his earlier decision in respect of the assessment years 1968-69 to 1970-71 in respect of the similar claim u/s 80M. The department, therefore, carried the matter in appeal before the Revenue Tribunal, which, following the decision of this Court in Additional Commissioner of Income Tax, Gujarat Vs. Cloth Traders (P.) Ltd., , held that the assessee was entitled to the relief u/s 80M on the basis of net dividend income, i.e., Rs. 12,23,279. It should be recalled that in appeal preferred by the department in respect of allowance of the claim by the Appellate Commissioner in respect of the assessment years 1968-69 to 1970-71, the Tribunal has allowed the appeal and directed that section 80M relief is allowance on net basis, with the result that the assessee has sought reference which was granted, the Reference No. being 160 of 1976, to this Hon''ble Court, that reference was not disposed of by this Court at the time when the appeal of the department was allowed in respect of the assessment year 1971-72, with which we are concerned in this reference. It is in this context, when the claim of the assessee was disallowed that the assessee sought reference of the second question, which has been granted as question No. 4 and which has been set out above.

At the outset, we may say that question No. 2, which is at the instance of the Commissioner and question No. 4, which is at the instance of the assessee, are admittedly covered by the decision of this Court. Question No. 2 is covered by the decision of this Court against the revenue in Shree Digvijay Cement Co. Ltd. (supra). We have, therefore, to answer question No. 2 in the affirmative, i.e., in favour of the assessee and against the revenue. Similarly, question No. 4 is covered by the decision of this Court in Shree Digvijay Cement Co. Ltd. Vs. Commissioner of Income Tax, Gujarat-V, against the assessee and, therefore, we have to answer question No. 4 in the affirmative, i.e., in favour of the revenue and against the assessee. We answer question No. 2 and question No. 4 accordingly.

We are left with question Nos. 1 and 3, which have been referred to us at the instance of the Commissioner and the assessee, respectively. We will deal with these questions one after another.

The dispute raised by question No. 1 lies in a short compass. If the pontoons are covered by the expression ''ship'', they would be entitled to development rebate at the rate of 40 per cent. If they are not, they are entitled to development rebate of 25 per cent on the basis of they being ''plant''. In other words, the question is whether pontoon can be considered to be ship in its ordinary meaning and not in the meaning given to it by the Legislature for the different purposes under the Act. The ordinary dictionary meaning of the term ''pontoon'' is ''Flat- bottomed boat used as ferry-boat, etc'' (see New Oxford Illustrated Dictionary, Vol. 2, p. 1310; Webster''s New Twentieth Century Dictionary Unabridged, Second edn., p. 1400). The dictionary meaning of the word ''ship'' is ''Any large sea-going vessel, propelled by sails, steam, or other mechanical means'' (see New Oxford Illustrated Dictionary, Vol. 2, p. 1563). In Webster''s New Twentieth Century Dictionary Unabridged, Second edn., at p. 1675, the meaning given to the word ''ship'' reads as under:

"Any vessel of considerable size navigating in deep water and not propelled by oars, paddles, or the like; distinguished from boat...."

It is, therefore, difficult to consider pontoons as ship in its ordinary literal sense. We have, therefore, to consider as to whether the Tribunal was right in treating pontoons as ships for the purposes under the Act, including that of development rebate.

The Appellate Commissioner accepted the submission of the assessee- company that pontoons should be treated for all intents and purposes under the Act as ships. The revenue was relating this claim on the ground that the pontoons by themselves were motionless since they were not self-propelled. This counter-submission of the revenue did not impress the Appellate Commissioner. While rejecting this counter- submission, he recorded his finding in the following terms:

"In the income tax Rules, 1962, depreciation has to be allowed on ships which are ocean ships or inland ships. In the category of inland ships as per income tax rule 4(6), item (iii)(sic) is described as ''Iron or Steel Flats for Cargo''. It is evident from item (iii) that the flats for cargo are categorised under inland ships, pontoons in the case of the appellant-company are used for transporting cargo and in my opinion, the pontoons clearly fall within the category of ship."

The Tribunal while agreeing with the view of the Appellate Commissioner referred to the classification under the head ''Ship'' as set out in the rules governing the depreciation. In this connection, the Tribunal referred to rule 5 of the income tax Rules, 1962 (''the Rules'') where ships have been classified into two broad categories, namely, (1) ocean-going ships, and (2) vessels ordinarily operating in the inland waters. Now, this second category of vessels for inland navigation are further sub-divided into sub-categories, namely, (1) speed boats, and (2) other vessels. The Tribunal referred to the dictionary meaning as given in Shorter Oxford English Dictionary, where the word ''pontoon'' has been defined as a flat-bottomed boat used as a lighter ferry-boat or the like. The Tribunal observed that pontoon being a flat-bottomed boat used as a lighter ferry-boat, etc., operate in inland waters and, therefore, it is entitled to be included in the term ''ships''.

It is no doubt true that so far as the term ''ships'' is concerned, there is no legislative dictionary in the Act. It is also equally true that in its ordinary literal meaning, pontoon cannot be considered as ship. But having regard to the legislative intent, as clearly manifested in the income tax (Sixth Amendment) Rules, 1969, since the Tribunal referred to the material part of the amended rule 5, inserted by the abovesaid Amendment Rules, which came into force with effect from 1-4-1970, it is clear that the sub-category of other vessels take in its sweep all the vessels, including the pontoons, which are being operated in inland waters. There is an inherent indication in the broad classification which fortifies our view. The broad classification is ocean going ships and vessels operating in inland waters and the term ''vessels'' means crafts or ships and the crafts are not necessarily self-propelled (see Shorter Oxford English Dictionary, p. 2351). The Tribunal, therefore, was justified in treating pontoons as ships for purposes of deciding as to what should be the appropriate rate of development rebate. We should remind ourselves that the Appellate Commissioner has referred to these very rules before they were amended by the income tax (Sixth Amendment) Rules. At that time, rule 4(b)(iii)(sic) included in the category of inland ships ''Iron or steel flats for cargo'' which, in the opinion of the Appellate Commissioner, did not warrant the view of the department that pontoons in order to be within the meaning of the term ''ships'' should be self-propelled. In other words, the legislative intent appears to be that such boats, whether they are flat or bottomed or otherwise, if they are capable of floating and used in inland navigation, including the use for transport of cargo inside the harbour, as contra-distinguished from ocean-going ships, partake the character of ships. The concept which was sought to be introduced by the ITO that they should be self-propelled is not warranted from the scheme of the classification adopted by the Legislature in the Rules. We, therefore, answer question No. 1 referred to us at the instance of the Commissioner that the pontoons are covered by the expression ''ships'' and, therefore, they are entitled to development rebate at the rate of 40 per cent. We answer the question, accordingly, in favour of the assessee and against the revenue.

That takes us to the consideration of question No. 3 which is at the instance of the assessee. We are again faced with the same vexed question which is, as observed by Bhagwati J., in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC) present "a difficult problem and continually baffled the Courts, because it has not been possible, despite occasional judicial valour, to formulate test for distinguishing between capital and revenue expenditure which will provide an infallible answer in all situations". In spite of it being often said that the line of demarcation has been found to be very thin and each case depends on its own facts and circumstances, it is desirable in order to avoid common pitfalls to remind ourselves of what should be the approach in resolving this question. In K.T.M.T.M. Abdul Kayoom v. CIT [1962] 44 ITR 689 (SC), Hidayatullah, J., speaking for the majority Court, observed as under:

"... none of the tests is either exhaustive or universal. Each case depends on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cardozo in the Nature of the Judicial Process) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at all decisive. What is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relation inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases."

Bearing in mind this warning, it would still be advisable to refer to the broad tests which have been enunciated by the Supreme Court in Assam Bengal Cement Co. Ltd. Vs. The Commissioner of Income Tax, West Bengal, , where the Supreme Court was concerned with the nature of payment of protection fees for protection of the mining rights in the land leased by the Government of Assam, in consideration of which the Government undertook not to grant to any person any lease, permit or prospecting licence for limestone in a group of quarries without a condition that the limestone should be used for the manufacture of cement. In that context, the Supreme Court on conspectus of entire relevant case law then existing laid down three tests for determining as to whether the amount of expenses was revenue or capital in nature. These broad tests are as under:

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.

Expenditure may be treated as properly attributable to capital when it 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. The enduring benefit or the permanent character mean acquisition of the asset of the right having enough durability to justify its being treated as a capital asset.

Whether, the expenditure incurred was a part of a fixed capital of business or the part of its circulating capital.

The Supreme Court digested these principles from the Full Bench decision of the Lahore High Court in (1947) 15 ITR 185 Lahore . After digesting these tests, the Supreme Court, speaking through Bhagwati, J. (as he then was) elaborated as to how these tests are to be applied. This elaboration is in the following terms:

"In cases where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital expenditure. 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 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, 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. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. If it was part of the fixed capital of the business it would be of the nature of capital expenditure and if it was part of its circulating capital it would be of the nature of revenue expenditure. These tests are thus mutually exclusive and have to be applied to the facts of each particular case in the manner above indicated. It has been rightly observed that in the great diversity of human affairs and the complicated nature of business operations it is difficult to lay down a test which would apply to all situations. One has therefore got to apply these criteria one after other from the business point of view and come to the conclusion whether on a fair appreciation of the whole situation the expenditure is capital expenditure or revenue expenditure...."

It was pointed out by the Supreme Court in Empire Jute Co. Ltd.''s case (supra) that each case must necessarily turn on its own facts and no infallible test can be laid down since the tests are useful as illustrations of some general principles. The principle is equally recognised that the test whether expenditure is incurred with a view to obtain an advantage of enduring benefit may break down in certain circum stances. Every advantage of enduring nature acquired by the assessee would not rule out the expenses incurred for gaining this advantage from the category of revenue expenses. What is material to consider in such cases is the nature of advantage in a commercial sense and whether the advantage is in the capital field, it would be only then that the expenditure would be disallowable on an application of the tests. On the other hand, if such advantage consists merely in facilitating the assessee''s trading operations or enabling it to carry on the business operations efficiently or profitably, the expenditure would be entitled to be treated on revenue account- Empire Jute Co. Ltd.''s case (supra).

A Division Bench of the Madras High Court in Commissioner of Income Tax Vs. Ashok Leyland Ltd., summed up the various tests succinctly as under:

"...The word ''capital'' connotes permanency and capital expenditure is, therefore, closely akin to the concept of securing something tangible or intangible property, corporeal or incorporeal rights, so that they could be of a lasting or enduring benefit to the enterprise in issue. Revenue expenditure, on the other hand, is operational in its perspective and solely intended for the furtherance of the enterprise. This distinction, though candid and well accepted, yet is susceptible to modification under peculiar and distinct circumstances. Thus, the facts of each case, the attendant circumstances revolving round the expenditure, the aim, object and purpose of the same, their impact on the assessee, particularly in matters relating to the future of the assessee''s trade and business, whether it could be sustained on ordinary canons of commercial expedience simpliciter, whether it is a step-in-aid of future expansion or prolongation of life of an existing business, whether it is to secure an enduring benefit, whether the expenditure constitutes conceivable nucleus to form the foundation for posterior profit earning, whether the expenditure could be viewed as an integral part of the conduct of the business and to avoid inroads and incursions into its concrete present and potential future, are all some of the main incidents which have a bearing on the decision whether, in a given case, the expenditure is capital or chargeable to revenue. On the whole, an objective application of a judicial mind to the facts of each case is necessary",

It should also be borne in mind that the expenditure would be attributable to a capital if it is made with a view to bringing an asset or advantage into existence and, therefore, it is not necessary that the expenditure should have that result. It is object that matters. (See Anglo-Persian Oil Co. Ltd. v. Dale (Inspector of Taxes) 16 TC 253, CIT v. S.L.M. Maneklal Industries Ltd. [1977] 107 ITR 133 (Guj.) and State Trading Corporation of India''s case (supra). It is in the background of this settled legal position that we have to consider as to whether the expenses incurred by the assessee-company for obtaining feasibility report for setting up the ship-yard at Seeka was in the nature of revenue expenses as claimed by the assessee. Since the Appellate Commissioner has emphasised that these expenses were entailed with a view to increase the maneuverability of fleet of ships that the assessee-company has, it would be permissible deduction on account of revenue expenses. The Tribunal, on the other hand, held that the impugned expenditure was directly linked with the construction of ship-yard with a view to facilitating better maneuverability of the country crafts and, therefore, it was an expenditure incurred with a view to obtain an advantage of enduring nature. As we have to find out, inter alia, the object of the expenses, we requested the learned advocate for the assessee-company to produce the feasibility report for setting up a ship-yard at Seeka. The learned advocate called for this report, which referred to the agreement between the company and the consultancy firm, Indopal Ltd. He also produced the relevant agreement in this behalf. We have taken the agreement as well as the feasibility report on record with the consent of the counsel for the revenue as well as the learned advocate for the assessee-company, and collectively marked them as Annexure ''F''. The agreement indicates that the consultants were engaged to prepare, within the agreed period, a feasibility report for the ship-building yard at Seeka in accordance with the scope indicated in enclosure No. 2 with a view to enable the assessee-company to arrive at a decision regarding the development of ship-building yard. Enclosure No. 2 gives broadly the scope of the feasibility report. The scope, inter alia, covers the topics as description of ship-yard proposed to be developed, including the vessels to be constructed, stagewise programme of ship-building facilities proposed and the possibility of using these facilities for overhaul, materials and equipments necessary for construction, schedule of project execution, description of machinery required to be installed, stagewise financial and economic aspects, cost of project, including civil construction, mechanical equipment, erection, cost of utilities, power, water, etc., recommendation of ship-yard management, personnel and technical administration and evaluation of cost of ship production. In pursuance of this agreement, the consultancy firm, Indopal Ltd., submitted a report, where they have set out the main points in respect of which the firm was required to prepare the report. The said points have been listed as under:

To find the investment requirement for constructing a ship-yard workshop for repairing ships of 20,000 DWT capacity when initially shipyard is equipped with minimum essential machinery.

To find the number of ships that can be repaired in the above ship-yard.

To find if it is feasible to build ships in this ship-yard.

If the ship-yard is to be altered for ship-building purposes, then what would be the cost of investment and its profitability.

Up to what extent ship-building and repairs capacity can be expanded and its economics.

The maximum size of ships that can be built in future.

The report consists of three parts. Part I relates to site condition, part II pertains to repair yard and part III to expansion possibilities. It is not necessary to go into the details of these parts. Suffice it for our purposes to bear in mind that the assessee-company has called for this detailed report so as to enable it to arrive at a decision regarding the development of ship-building yard at Seeka. The aim and object of the expenses which is in the nature of consulting fees for preparing this feasibility report cannot be said to be clearly for initiation of a business, for extension of a business or for substantial replacement of equipment. In other words, it would not fall within the first test laid down in Assam Bengal Cement Co.''s case (supra). The expenses have been incurred while the business of manufacturing cement is going on. It is an admitted position that it is not incurred either for the expansion of business of manufacturing cement or for the substantial replacement of its equipments. The question, therefore, shall have to be examined from the angle of the second test which has been laid down in Assam Bengal Cement Co.''s case (supra). Such expenditure can be looked at 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 expenses are not entailed in running the business or working it with a view to produce the profits but have been entailed with the purpose of bringing into existence an asset or advantage of enduring benefit, the question of the source of the expenditure would be of no consequence. It is only when the second test fails that we may go to examine as to whether the expenditure incurred was part of the fixed capital or part of the circulating capital. The bone of contention between the parties is that nothing tangible has been achieved or intended to be achieved by calling for the feasibility report. As contended by the assesses, it was only with a view to enable the assessee-company to decide whether it should go for setting up of the ship-yard that this report has been called for. On the other hand, the revenue has emphasised that it is of no consequence whether the decision has been taken or for that matter the ship-yard was in fact established. Even if the expenses are entailed with a view to bring into existence an asset or advantage of enduring nature, they are not qualified to be treated as of revenue nature, they are not qualified to be treated as revenue expenses. The learned advocate for the assessee tried to impress upon us that this test of bringing into existence an asset of enduring benefit breaks down under certain circumstances and that test cannot in all situations clinch the issue. The Court has to examine this question from the viewpoint of the commercial expediency, and if the assessee-company with an immediate object of increasing the maneuverability of the fleet of its crafts called for this feasibility report, with no ultimate view of setting up ship-yard, it cannot be held, as was done by the Tribunal, that these expenses were entailed with a view to bring into existence some asset or advantage of enduring nature. The learned counsel for the revenue in this connection invited our attention to the provision contained in section 35D of the Act which has been inserted by the Taxation Laws (Amendment) Act, 1970, with effect from 1-4-1971. It provides for amortisation of certain preliminary expenses which, inter alia, includes expenses for preparation of feasibility report. The learned counsel for the revenue, therefore, urged that since in some cases this expenditure which is in the nature of capital may not be permissible and would be treated for all purposes as personal expenses, the Legislature has provided for writing off capital expenditure of such a nature over a period of years. Having regard to the scope of agreement between the assessee-company and the consultancy firm which was assigned the work of preparing the feasibility report for setting up the ship-yard at Seeka, we are of the opinion that the assessee-company intended to bring into existence an asset which is of permanent or at least enduring nature. It cannot be gainsaid that the expenses incur- red for preparation of feasibility report are with a view to bring this asset into existence. The only short question which is to be answered is, does this test of bringing the asset or advantage of enduring nature break down in the circumstances? As pointed out by Bhagwati, J. in Empire Jute Co. Ltd.''s case (supra), 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 an application of this test. If the advantage consists merely in facilitating the assessee''s trading operations or enabling the management and conduct of the assessee''s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account. The factual context before the Supreme Court in Empire Jute Co. Ltd.''s case (supra) was that the assessee-company had purchased loom hours from four different jute manufacturing concerns for a sum of Rs. 2,03,255 during the previous year, relevant to the assessment year 1960-61 and claimed to deduct the said amount as revenue expenses. The Tribunal held that the expenses were revenue in nature and, hence, qualified for permissible deduction. The High Court held that the amount paid by the assessee-company was in the nature of capital expenditure and, therefore, not a permissible deduction. In that background, the Supreme Court rules that by the purchase of the loom hours no new asset was created and there was no addition to or expansion of the profit-making apparatus of the appellant and the acquisition of additional loom hours did not add to the fixed capital of the appellant; the permanent structure of which the income was the product or fruit remained the same; it was not enlarged nor did the appellant acquire a source of profit or income when it purchased the loom hours. The expenditure incurred for the purpose of operating the looms for longer working hours was primarily and essentially related to the operation or working of the looms which constituted the profit-making apparatus of the appellant and was expenditure laid out as part of the process of profit earning. It is no doubt true that the Supreme Court in Empire Jute Co. Ltd.''s case (supra) did say that the test of enduring benefit is not an immutable and a certain test since it may break down under certain circumstances. We have not been able to appreciate how this ruling can be pressed into service on behalf of the assessee-company for purposes of establishing that the test has in fact broken down under the facts and circumstances of the case. It is no doubt, as stated above, not a certain and conclusive test, but nonetheless it is one of the tests which has to be applied and what the Court has to bear in mind is that in the ultimate analysis what is the aim and object of the expenses. The learned advocate for the assessee-company took great pains to persuade us that no capital asset has come into existence nor was it intended to bring the capital asset into existence. The feasibility report is nothing else but an exploratory exercise for the purposes of taking a decision whether the ship-yard should be established or not and, therefore, on the facts of the case the test of bringing asset or advantage of enduring benefit into existence would not apply. That, in our opinion, is a separate argument by itself. That would not be tantamount to saying that the test has broken down. We have, therefore, to find out as to what was the precise purpose of calling for the feasibility report. On mere reading of clause 1.2 of the agreement, we are of the opinion that it was for the purposes of enabling the assessee-company to decide regarding the development of ship-building yard. The relevant clauses of the said agreement are clauses 1.1 and 1.2, which read as under: "1.1. The consultants shall within a period of 6 (six) months from the date hereof work out a feasibility report for a ship-building yard at Seeka, in accordance with the scope indicated in enclosure No. 2 annexed hereto.

1.2. The consultants shall within the said period submit the feasibility report to the clients to enable the clients to arrive at a decision regarding the development of the ship-building yard."

It is no doubt true that a decision for the development of the ship-building yard was to be taken on the basis of the feasibility or otherwise in the report that was to be submitted by the consultancy firm. Nonetheless, the sole purpose which prompted the assessee-company to call for such a report is with a view to decide as to whether they should or should not establish and develop a shipbuilding yard. In other words, the expenses have been entailed with a view to decide as to whether the advantage or asset of an almost permanent nature or of an enduring benefit should be brought into existence or not. If that is the aim and purpose of the expenses which cannot be disputed, the fact that the feasibility report did not indicate favourably the establishment of ship-building yard or the fact that there was infrastructure facility for developing the site into a shipbuilding yard, or that no yard was established and developed in fact, cannot be of much assistance to the assessee. As Bowen, LJ. remarked in City of London Contract Corpn. Ltd. v. Styles (Surveyor of Taxes) [1887] 2 TC 239, "you do not use for the purposes of your concern which means for the purposes of carrying on your concern but you use it to acquire another concern" or with a view to bring into existence the asset or advantage of permanent or enduring nature. In Anglo-Persian Oil Co. Ltd.''s case (supra), Viscount K. emphasised that the expenditure would be attributable to capital if it is made with a view to bringing an asset or advantage into existence and it is not at all necessary that the expenditure should have that result. It is the object alone that counts. It cannot be successfully contended that the ship-building yard was to facilitate the assessee''s trading operation or was to enable the assessee to conduct and manage its business more efficiently or to earn more profits without touching its capital asset. The possibility of shipping yard resulting, if at all, in greater maneuverability of the fleet or crafts of the company is so remote that it is travesty of language to say that it is an integral part of the business or profit earning apparatus. We are, therefore, of the opinion that on the matter of principle as well as authority, it would be difficult for us to agree with the learned advocate for the assessee that these expenses qualify themselves to be revenue expenses, and, therefore, permissible reduction. There is an additional reason in support of the view which we are inclined to take, and that is the insertion of a new provision in the nature of section 35D which of course permits the amortisation of capital expenditure, inter alia, for preparation of feasibility report under the specified conditions. In other words, the legislative development indicates that under specified conditions the Legislature has thought it fit to permit the set off of capital expenses against the revenue receipts over a number of years. It is not intended to supersede any other provision in the income tax law under which the expenditure is allowable as deduction against profits. We are emphasising it for a limited purpose to indicate as to how the Legislature has tried to intervene and see that such nature of expenses may not be treated as virtually personal expenses, if certain conditions are specified. In that view of the matter, therefore, we have to answer the question No. 3 in the affirmative, i.e., in favour of the revenue and against the assessee. Having regard to the facts and circumstances of this case, there would be no order as to costs.