Cooper Engineering Ltd. vs Commissioner of Income Tax, Bombay City-I, Bombay

Bharucha, J.—By a Government resolution dated April 13, 1963, the Government of Maharashtra accorded administrative approval to plans and estimates, the latter amounting to Rs. 7,80,000, for construction by the Maharashtra Housing Board of 200 two-room tenements at Chinchwad, District Pune, under the subsidised Industrial Housing Scheme. Out of the 200 tenements, 100 tenements were to be built for housing eligible industrial workers of the assessee in accordance with a scheme sanctioned under a Government resolution dated July 25, 1963. The remaining 100 tenements would be placed in the general industrial housing pool. An amount of Rs. 1,95,000 was required to be deposited by the assessee with the Maharashtra Housing Board as its contribution. The tenements to be built for the assessee were to be allotted to its eligible workers in accordance with the procedure for allotment laid down in the latterly mentioned Government resolution.

A note annexed by the assessee, which is part of the record, shows that the tenements would belong to the State Government. The Industrial Housing Colony wherein they were to be situated would be run by the State Government. The cost of the services to and the maintenance of the quarters would be met by the State Government. If the occupant of the tenement ceased to be an employee of the assessee, he was required to vacate the tenement. The responsibility of evicting him therefrom was that of the State Government.

During the previous year relevant to the assessment year 1965-66, the assessee paid to the Maharashtra Housing Board a sum of Rs. 48,750, being half of the amount of Rs. 97,500, required to be contributed by it as aforesaid. It claimed that the payment was revenue expenditure and deductible. The Income Tax Officer found that this was not an expenditure of a revenue nature and declined the claim for deduction. The Appellate Assistant Commissioner, on appeal, considered the expenditure to be made for the creation of a capital asset and rejected the assessee''s appeal. On further appeal to the Income Tax Appellate Tribunal, the disallowance of the expenditure, because it was capital expenditure, was sustained.

Arising out of this finding of the Tribunal, the second of the two questions posed in this reference arises. The first of the two questions is covered by an earlier decision of this court.

The two questions read thus :

"(1) Whether, on the facts and in the circumstances of the case, the sums of Rs. 12,020 and Rs. 12.021 paid to M/s. G. Perry and Sons in these two years were properly disallowed as capital expenditur ?

(2) Whether, on the facts and in the circumstances of the case, the disallowance of the contribution of Rs. 48,750 to the Maharashtra Housing Board as capital expenditure is correct in la ?"

It is true that the buildings in which the tenements were situated and the land upon which the buildings stood were not of the ownership of the assessee. We are, none the less, of the view that the assessee obtained by incurring the expenditure an advantage of an enduring nature in the capita field. This is because the assessee, by incurring the expenditure, secured the advantage of housing its employees in 100 tenements for as long a period as the buildings in which the tenements were situated stood. There is no reason but to assume that the buildings would stand for a considerable period. It must also be noted that upon ceasing to be in the service of the assessee, its employees were required to vacate the tenements so that such tenements became available to be allotted by the assessee to other employees.

We are supported in the view that we take by the decision of the Allahabad High Court in Raza Buland Sugar Co. Ltd. Vs. Commissioner of Income Tax, Central, . The facts there were substantially similar. The court noted that the quarters were exclusively used by the assessee and, though, the assessee was not their owner, it was entitled to their exclusive user for an unlimited period of time. The assessee, it found, had acquired and advantage of an enduring nature and the expenditure was, therefore, capital expenditure.

Mr. Mehta, learned counsel for the assessee, drew our attention to the approach suggested by the Supreme Court for adoption in matters of this kind. This is the judgment in L.B. Sugar Factory and Oil Mills (P) Ltd., Pilibhit Vs. Commissioner of Income Tax , U.P., Lucknow, . The Supreme Court reiterated what had been held by it in Empire Jute Co. Ltd. Vs. Commissioner of Income Tax, , and said that there might be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, might, none the less, be on revenue account. It was not every advantage of enduring nature acquired by an assessee that brought the case within the principle laid down in the test of enduring benefit. What was material to consider was the nature of the advantage in a commercial sense and it was only where the advantage was in the capital field that the expenditure would be disallowable on the application of this test. If the advantage consisted 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, even though the advantage might endure for an indefinite future.

Mr. Mehta submitted that the expenditure incurred by the assessee in the instant case merely enabled the management and conduct of the assessee''s business to be carried on more efficiently. We are unable to take this view. The advantage gained by the assessee here is not merely of an enduring nature but is also, plainly, in the capital field. The assessee has, by incurring the expenditure, obtained for itself the advantage of housing its employees in 100 tenements for as long as the buildings in which the tenements exist stand.

Mr. Mehta drew our attention to the judgment of the Madras High Court in Commissioner of Income Tax Vs. T.V. Sundaram Iyengar and Sons (P.) Ltd., . That was a case in which the Government of Tamil Nadu had been proposing to bring in legislation to make employers contribute a percentage of their wage bill towards the construction of houses for workers. In view of the voluntary agreement of the employers to contribute towards such a measure, the Government had decided to defer the legislation. The assessee, in consequence, made a contribution towards the industrial housing scheme of the Government. Finding, in addition to the fact that the assessee would not have any interest in the buildings to be built and that in the assessment year in question only the land had been purchased and no buildings had been put up, that the expenditure was incurred more as a matter of commercial expediency in view of the agreement aforementioned, the Madras High Court was of the view that the amount in question was a permissible deduction as a revenue expenditure incurred wholly and exclusively for the purpose of the assessee''s business.

The emphasis in the Madras judgment is upon the commercial expediency which made the assessee contribute towards the housing scheme. Such commercial expediency resulted in the finding that the expenditure was incurred for the purposes of the assessee''s business and was, accordingly, deductible. No question of commercial expediency arises in the matter before us.

In Commissioner of Income Tax Vs. Singareni Collieries Co. Ltd., , the Coal Mines Labour Housing Board was constituted for the construction of low-cost houses for persons employed in coal mines. In pursuance of the scheme prepared by this Board, the assessee entered into an agreement with the Board for the construction of quarters for its labourers. According to the scheme, the buildings were required to be durable for an estimated life of 15 years and the agreement was to operate only for that period of 15 years. During this period, the assessee was required to pay a nominal rent of Rs. 1 per month per tenement. The allotment, control and use of the accommodation was in the discretion of the assessee, but the allotment was required to be made only to its employees. The Andhra Pradesh High Court held that "enduring benefit" was a relative term of contextual interpretation. In the light of the possible and probable long span of its life, the indirect profit which the assessee might derive through contented workmen for a limited period of just 15 years could not constitute such a lasting benefit as to classify the expenditure as capital expenditure. In the circumstances, the court held that the expenditure was incurred for carrying on the assessee''s business profitably and the assessee was entitled to its deduction.

In the instant case, the assessee is entitled to the use of the 100 tenements for housing its employees not for a limited span of time but for as long as the buildings in which the tenements are situated stand. This, ordinarily, is not an inconsiderable period of time. We cannot, therefore, find, as the Andhra Pradesh High Court did, that the assessee had not secured a benefit of a lasting nature.

In Commissioner of Income Tax Vs. Rupsa Rice Mill, , the expenditure related to a donation of Rs. 12,137 made by the assessee for the construction of a primary health centre. The Orissa High Court found that the primary health centre was the property of the Government and that the assessee had made the contribution in consideration of the fact that a health centre located near the factory premises would provide treatment to the ailing workmen. Under the State Employees Insurance Act, the assessee had an obligation to maintain a hospital for its workmen or to meet the expenses of their treatment. Taking an overall picture of the matter, the Tribunal had recorded the finding that the expenditure on the donation was a business expenditure and the Orissa High Court was not inclined to take a different view.

The facts in the Orissa High Court case are substantially different from those before us. There, it was an obligation on the part of the assessee to maintain a hospital for or to meet the expenses of treatment of its employees. It made the contribution for the erection of a health centre so that treatment would be available to its employees near the factory premises. In these circumstances, the expenditure was held to be business expenditure.

Lastly, Mr. Mehta drew our attention to the judgment of this court in Commissioner of Income Tax, Bombay City I Vs. Associated Cement Companies Ltd., . The assessee''s cement factory was situated outside the municipal limits of the town of Shahabad in Karnataka. The Government decided to include the area in which the factory was situated within the municipal limits of the town. Pursuant to negotiations, it was agreed between the assessee and the Government that the assessee would provide certain amenities, such as water supply to the town and the Government undertook not to include the factory area within the municipal limits for a period of 15 years. During the year in question, the assessee spent Rs. 2,09,459 for installing pipelines and the like, which became municipal property, and claimed the expenditure as business expenditure. The view shared by the learned judges of this court was that the expenditure incurred by the assessee to put off for a period of 15 years, the imminent possibility of the inclusion of the factory area within the municipal limits and the consequent payment of municipal taxes and other disadvantages were incurred for more convenient and economical running of the business and was, therefore, revenue expenditure.

The facts in the Commissioner of Income Tax, Bombay City I Vs. Associated Cement Companies Ltd., are altogether different from those before us.

In the result, the second question must be answered in the affirmative and in favour of the Revenue.

In so far as the first question is concerned, counsel are agreed that its answer is governed by the decision of this court in the assessee''s own case reported in Cooper Engineering Ltd. Vs. Commissioner of Income Tax, Bombay City-I, . Following that judgment, the first question is answered in the negative and in favour of the assessee.

No order as to costs.