COMMISSIONER OF INCOME TAX Vs. CADBURY INDIA LIMITED

JUDGEMENT

(1.) THE following question has been referred by the Tribunal for the opinion of this Court under S. 256 (1) of the IT Act :

(2.) FOR the asst. year 1979 80, the assessee filed its return of income on 13th July, 1979. The assessee claimed weighted deduction under S. 35C on the expenditure of Rs. 12,87,531 which amount included Rs. 34,305 which represented depreciation on certain assets. It was disallowed by the AO on the ground that depreciation allowance is not an expenditure to be considered for weighted deduction under S. 35C of the Act. Being aggrieved, the matter was carried in appeal to the CIT(A) who came to the conclusion following the decision of the Calcutta High Court in the case of Indian Leaf Tobacco Development Co. Ltd. vs. CIT (1982) 137 ITR 827 (Cal) : TC 15R.588 that the depreciation should be treated as expenditure and should be allowed as weighted deduction. Being aggrieved by the decision of the first appellate authority, the Department carried the matter in appeal to the Tribunal the appeal was dismissed. Hence, the Department has filed this appeal under S. 260A of the IT Act.

(3.) MR . Kaka, learned counsel for the assessee, on the other hand, contended that depreciation is not a notional expenditure. He contended that S. 35C refers to capital expenditure. He submitted that under S. 37 of the IT Act, capital expenditure is excluded. He contended that depreciation is a prepaid expenditure. In this connection, Mr. Kaka placed reliance on the judgment of the Supreme Court reported in P.K. Badiani vs. CIT 1976 CTR (SC) 466 : (1976) 105 ITR 642 (SC) : TC 41R.268 in which it has been held that the depreciation charged represents an example of prepayment. Mr. Kaka accordingly submitted that the depreciation charged is not a notional expenditure. That, it is an actual expenditure. He also relied upon the judgment of the Madhya Pradesh High Court in the case of M.P. Financial Corporation vs. CIT (1986) 51 CTR (MP) 249 : (1987) 165 ITR 765 (MP) : TC 16R.236 in which it has been held that the word "expenditure" is not defined in the IT Act. That, the word "expenditure" includes a loss. That, the Madhya Pradesh High Court followed the judgment of Calcutta High Court referred to above. Mr. Kaka further relied upon the judgment of the Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. vs. CIT (1997) 139 CTR (SC) 555 : (1997) 225 ITR 802 (SC) : TC S16.1659 in which it has been held that expenditure denotes spending or paying out. It may also cover an amount of loss. It also covers a liability which the assessee has incurred in the present. In the said judgment, the Supreme Court has affirmed the decision of Madhya Pradesh High Court referred to above. In the circumstances, the learned counsel contended that the expenditure contemplated by S. 35C is in the nature of a capital expenditure. In the circumstances, depreciation was an expenditure contemplated by S. 35C. He further contended that S. 35C was enacted in order to give encouragement to agricultural activity and, therefore, the beneficial interpretation should be given to S. 35C. Findings