M/S. SITALI'UR SUGAR WORKS LTD. vs. COMMISSIONER OF INCOME-TAX, BIHAR AND ORISSA

CIVIL APPEAL No. 350/1962Supreme Court[1964] 3 S.C.R. 1710 April 1963Bench: 3 JudgesAuthor: S.K. DAS, A.K. SARKAR, M. HIDAYATULLAH S.C.R.. SUPREME COURT REPORTS8 pages
AI SummaryDismissed

What were the facts?

The appellant, M/s. Sitalpur Sugar Works Ltd., a sugar manufacturing company, shifted its factory from Sitalpur to Garaul due to disadvantages at the original site, including poor sugarcane availability and flood risks. This involved dismantling buildings and machinery, transporting them, and refitting them at the new location, incurring an expense of Rs. 3,19,766/-. The company claimed this expenditure as revenue expenditure for income-tax purposes. The assessment year(s) are not explicitly stated but the dispute pertains to the year of account when the expenditure was incurred. The High Court of Patna had answered two questions referred to it against the assessee. The present appeal is against the judgment and decree of the Patna High Court.

What did the Supreme Court hold?

The Tribunal held that the expenditure of Rs. 3,19,766/- incurred by the appellant in dismantling and shifting its factory was of a capital nature and not revenue expenditure. The reasoning was that the expense was not incurred for carrying on the concern or earning profit, but rather for setting up the concern with greater advantage for the trade and effecting a permanent improvement in the profit-making machinery (capital assets). The Tribunal relied on the dictum of Viscount Cave in Atherton v. British Insulated and Helsby Cables Ltd., stating that expenditure made with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade is capital expenditure. It was clarified that this advantage need not be a material asset or a legal right, but an advantage of an enduring nature for the benefit of the trade. The Tribunal also held that the assessee was not entitled to claim depreciation on this expenditure under section 10 (2) (vi) of the Income-tax Act because no tangible asset had been acquired by the expenditure which could be said to have depreciated. Furthermore, the claim under Part V of the Form of Return was rejected as it required an improvement of the capital asset or an increase in its value, which was not evidenced. The appeal was dismissed.

What were the issues?

1. Whether the expenditure of Rs. 3,19,766/- incurred by the assessee in dismantling and shifting the factory from Sitalpur and erecting the factory and fitting the machinery at Garaul was expenditure of a capital nature and not revenue expenditure within the meaning of section 10 (2) (xv) of the Income-tax Act? Assessee's contention: The expenditure was revenue expenditure. The judgment does not record specific arguments for the assessee beyond this claim, but the High Court's reasoning implies the assessee argued it was not capital expenditure. Revenue's contention: The expenditure was capital in nature. The judgment does not record specific arguments for the revenue. 2. Whether the assessee was entitled to claim depreciation on the said expenditure of Rs. 3,19,766/-? Assessee's contention: Depreciation is allowable on capital expenditure for improvements, as indicated by Part V of the Form of Return, and the expenditure qualified as such. Revenue's contention: Depreciation is not allowable. The judgment does not record specific arguments for the revenue.

Which sections of the Income-tax Act were involved?

Section 10 (2) (xv),Section 10 (2) (vi)

AI-generated summary — verify with the full judgment below

3 S.C.R.. SUPREME COURT REPORTS M/s. SITALI'UR SUGAR WORKS LTD. v. COMMISSIONER OF INCOME-TAX, BIHAR AND ORISSA 17 (S.K. DAS, A.K. SARKAR and M. HIDAYATULLAHjj.) -• Income Tax-Expenditure incurred on dismantling a factory at one place and setting it up at another-Capital expendi- ture and not revenue expenditure-Depreciation on capital ex- penditure-Depreciation not allowed on amount spent for acquiring an advantage-Indian Income-tax Act, 1922 (11 of 1922), s. 10 (2) (vi).

The appellant, a comp.any manufacturing sugar, shifted its factory from the old site to a new site and incurred a total expense of Rs. 3,19,766/- on the dismantling of buildings and machinery, transporting machinery from the original site to the new site ann refitting the same there.

HeU that the appellant was not entitled to a deduction of this expense for income-tax purposes as an expense incurred for carrying on the concern or in earning profit, it was an expense incurred in effecting a permanent improven1ent in the profit-making machinery and was, therefore, an expenditure on capital account.

The expense was on capital account also because it was made, -~not only once for all, but

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 10 (2) (xv)

All 90 judgments and leading authorities on Section 10 (2) (xv) →

Recent GST High Court judgments

Search GST case law →