MANOJ DYEING COMPANY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Tribunal has referred the following question of law under S. 256(1) of the IT Act, 1961, for the asst. year 1982 83 :

(2.) THE brief facts of the case are that the assessee is carrying on the business of dyeing and tentering of voile on job basis for which the assessee obtained land in the industrial area from RIICO. The development charges of Rs. 5,925 were claimed as revenue expenditure. The ITO found that the assessee has debited a sum of Rs. 3,950 to the P&L account and Rs. 1,975 has been debited under the head "Discount" which has ultimately been adjusted in the processing account. The ITO came to the conclusion that the said amount is the consideration for acquisition of leasehold rights in the plot allotted to the assessee by the RIICO. The assessee by acquiring the leasehold rights certainly acquired an advantage and an asset of enduring nature. The said expenditure was considered as capital in nature and held not admissible. The CIT(A) allowed the appeal and held it to be revenue expenditure. The matter was taken up before the Tribunal and the appeal was allowed following another decision given by the Tribunal in the case of Jaswant Trading Co. In the matter of Jaswant Trading Co., the Tribunal examined the various clauses of the lease for establishment of the factory in the industrial area by RIICO and found that the lease has been executed for a period of 99 years. According to the agreement, the entrepreneur has to make lease charges and the development charges in respect of the land allotted. It is also possible that the development may be made by the intrepreneur himself. The Tribunal came to the conclusion that the development charges are clearly capital in nature.

(3.) IN the present matter the nature of expenditure is in relation to a capital asset, namely, the land which has been allotted by the RIICO to the petitioner. The expenditure is in relation to a fixed capital/asset and not to a circulating capital. The fixed capital is that which the entrepreneur turns into profit by keeping the same in the business. The character of the development charges, therefore, would be in respect of an asset of which enduring benefit has been availed of by the assessee. The development charges make the land in a workable position so that the entrepreneur can establish its unit and such expenditure is once for all. It cannot be considered to be an advantage of limited duration. The nature of the advantage in the commercial sense is in the capital field. Therefore, we are of the view that the Tribunal was justified in coming to the conclusion that the development charges paid by the assessee is an expenditure of capital nature and is not allowable.