COMMISSIONER OF INCOME TAX Vs. KIRKEND COAL COMPANY

JUDGEMENT

(1.) THIS is a reference under Section 66(1) of the Income-tax Act. The question referred for the opinion of the High Court is "whether the sum Rs. 21,911 claimed as stowing expenses is capital expense or revenue expense?"

(2.) THE assessee, Messrs. Kirkend Coal Company is a firm carrying on coal mining business. During the accounting year ending with the 31st December, 1956, they spent a sum of Rs. 21,911 in stowing operations. It is common ground that the stowing in respect of which the aforesaid amount was spent was not undertaken as is generally done in connection with depillaring operations; it was rather undertaken in the process of extraction of coal as a business necessity or expediency. Indeed the Department of Mines required the stowing of certain galleries near the pit-mouth to be done before permission for working the colliery during the accounting year could he given, and, accordingly the assessee expended the aforesaid amount on stowing for being able to work the colliery. In these circumstances, the assessee claimed that the aforesaid expenditure having been incurred for the purpose of its business was revenue expenditure and fell within Section 10(2)(xv) of the Income-tax Act, 1922. THE Income-tax Officer as well as the Appellate Assistant Commissioner on appeal by the assessee having held that the expenditure in question was in the nature of capital expenditure and was thus not a deductible allowance, the assessee preferred an appeal to the Income-tax Appellate tribunal which allowed the appeal and held as follows:

(3.) A distinction has been made in this Privy Council case between the acquisition of an income-earning asset and the process of the earning of the income The present case falls in the latter category. The cases to which we have referred and many more have been all considered by the Supreme Court in the case of Assam Bengal Cement Co. Ltd., (1955) 1 SCR 972: ( (S) AIR 1955 SC 89). From which we have set out above the relevant extracts and it follows that if the expense was not made with a view to acquiring an enduring material, asset or advantage, it will not be a capital expense. Indeed it should be remembered in connection with Viscount Cave's speech that the expenditure is attributable to capital if it be made "with a view to bringing an asset or advantage into existence". It is, however, not necessary, as was pointed out by Romer, L. J. in the case of Anglo-Persian Oil Co. v. Dale, 1932 16 Tax Cases 253 at p. 274, that the expenditure should have that result; it is the object alone that counts. Likewise, the mere act that an essentially operational expense has in fact resulted in the coming into existence of some advantage which is going to endure or several years is also of no consequence. In the present case it is no doubt, true that, as a result of the stowing, it had become possible or the assessee company to continue to extract coal for a number of years to come. But in view of the object and the purpose with which the stowing was undertaken in the present case we do not see how the mere fact that, as a result of the stowing, the assessee company would be able to win coal for a number of years would transform what was essentially an operational expenditure into an expenditure of capital nature. There is nothing to suggest that the stowing would have been done to any lesser degree if it was meant to be effective for the accounting year alone. Indeed, it would have detracted from the value of the stowing if it was left incomplete. If a colliery, for instance, were to put up a prop so that certain areas from which coal had been worked out would not subside, the prop has to be effective and the expenses incurred in putting the prop would normally and undisputedly be of a revenue character, even though the effect of putting that prop might enure for some more years. The Supreme Court, in a recent case, Bombay Steam Navigation Co. v. Income-tax Commr., AIR 1965 SC 1201 at p. 1205 has laid down the test for determining the question whether a particular expenditure had been incurred for the purpose of the business and, therefore, a revenue expenditure in the following words: