# M/s. SITALI'UR SUGAR WORKS LTD v. COMMISSIONER OF INCOME-TAX, BIHAR AND ORISSA

- **Citation:** [1964] 3 S.C.R. 17
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-sitali-ur-sugar-works-ltd-v-commissioner-of-income-tax-bihar-and-orissa-2875
- **Pages:** 8

## Headnote

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 expenditure and not revenue expenditure-Depreciation on capital expenditure-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 with a view to bringing into
existence an asset or an advantage for the enduring benefit of
a trade" within the dictum of Viscount Cave in Atherton v.
Britith Insulated and Helsby Cables Ltd. In order that that
dictum may apply it is not necessary that by the expenditure
a material asset or a permanent right in the nature of capital
should be acquired. There may be an expense incurred on
capital account though nothing was thereby added to the
capital value of an asset.
Atherton v. British Insulated andHelsby Cables Ltxl. (1925)
10 T. C. 155 Assam Bengal Cemenl Co. Ltd. v. The Comm;,,.
sio••r of fncome-ta:x,
West Bengal, [1955] 1 S. C. R. 972,
GraniteS.,pply Association Ltd. v Kitton, (1905) 5 T. C. 168
and Bea• v. Doncaater Amalgamated Collierie. Ltd. (!945) 27
T. C. 29i, referred to.
AFil JO
1963
$j/qJfJUt Suz•
Works £14.
18
SUPRE~E COURf REPORTS [196'1] VOb.
An expense would not be on revenue account simply
because it was incurred to turn a losing concern into a J?rofitable one.
...
.
C:.-"-Bi:;•
Though the expense incurred by the appellant was of a ca·
-.::;....,
pita! nature, it was not entitled to any depreciation on it under
s.10 (2) (vi) of the Income-tax Act br:cause no tangible asset had
been acquired by the expenditure which can be said to have
depreciated. Neither was the appellant entitled to depreciation undrr part V of. the Form of Return given in the Rules
framed under the Act which dealt with a claim for deprecia·
tion and by column 3 required a statement to be made for
•-
"capital expenditure during the year for additions, altemations, improvements and extensions," fo:1.· to be so entitled to
deductions under this part there ha• to be an improvement of
the capital asset or increase in its value and there is no evidence
of any such improvement or increase. Further, no claim for
depreciation on improvement to capita) asset had been made.
CIVIL APPELLATE jURISDIOTION : Civil Appeal
No. 350 of 1962.
Appeal by special leave from the judgment and
decree dated November 30, 1960, of the Patna High
Court in Miscellaneous Judicial Case No. 799 of 1958.
G. S. Pathak and G. O. Mathur, for the appe·
llant.
N. D. Karkhanis and R. N. Saahthey, for the
respondent,
1963, April 10. The Judg~ent of the Court
was delivered by
SARKAR J.-This case does not seem to us to
present any real difficulty. It arises out of a reference
to the High Court of Patna of two questions both of
which were answered by the High Court against
the assessee, the appellant in this Court.
The appellant is a company manufacturing
sugar. It had its factory originally at a place called
..
I
•
•
a S.C.R.
SUPREME CbtJRT REPORTS
19
Sitalpur. That place was found to be disadvantageous for the appellant's business as sugar cane of
good quality was not available in sufficient quantity
in the neighbourhood and also as i

## Text

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 expenditure and not revenue expenditure-Depreciation on capital expenditure-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 with a view to bringing into
existence an asset or an advantage for the enduring benefit of
a trade" within the dictum of Viscount Cave in Atherton v.
Britith Insulated and Helsby Cables Ltd. In order that that
dictum may apply it is not necessary that by the expenditure
a material asset or a permanent right in the nature of capital
should be acquired. There may be an expense incurred on
capital account though nothing was thereby added to the
capital value of an asset.
Atherton v. British Insulated andHelsby Cables Ltxl. (1925)
10 T. C. 155 Assam Bengal Cemenl Co. Ltd. v. The Comm;,,.
sio••r of fncome-ta:x,
West Bengal, [1955] 1 S. C. R. 972,
GraniteS.,pply Association Ltd. v Kitton, (1905) 5 T. C. 168
and Bea• v. Doncaater Amalgamated Collierie. Ltd. (!945) 27
T. C. 29i, referred to.
AFil JO
1963
$j/qJfJUt Suz•
Works £14.
18
SUPRE~E COURf REPORTS [196'1] VOb.
An expense would not be on revenue account simply
because it was incurred to turn a losing concern into a J?rofitable one.
...
.
C:.-"-Bi:;•
Though the expense incurred by the appellant was of a ca·
-.::;....,
pita! nature, it was not entitled to any depreciation on it under
s.10 (2) (vi) of the Income-tax Act br:cause no tangible asset had
been acquired by the expenditure which can be said to have
depreciated. Neither was the appellant entitled to depreciation undrr part V of. the Form of Return given in the Rules
framed under the Act which dealt with a claim for deprecia·
tion and by column 3 required a statement to be made for
•-
"capital expenditure during the year for additions, altemations, improvements and extensions," fo:1.· to be so entitled to
deductions under this part there ha• to be an improvement of
the capital asset or increase in its value and there is no evidence
of any such improvement or increase. Further, no claim for
depreciation on improvement to capita) asset had been made.
CIVIL APPELLATE jURISDIOTION : Civil Appeal
No. 350 of 1962.
Appeal by special leave from the judgment and
decree dated November 30, 1960, of the Patna High
Court in Miscellaneous Judicial Case No. 799 of 1958.
G. S. Pathak and G. O. Mathur, for the appe·
llant.
N. D. Karkhanis and R. N. Saahthey, for the
respondent,
1963, April 10. The Judg~ent of the Court
was delivered by
SARKAR J.-This case does not seem to us to
present any real difficulty. It arises out of a reference
to the High Court of Patna of two questions both of
which were answered by the High Court against
the assessee, the appellant in this Court.
The appellant is a company manufacturing
sugar. It had its factory originally at a place called
..
I
•
•
a S.C.R.
SUPREME CbtJRT REPORTS
19
Sitalpur. That place was found to be disadvantageous for the appellant's business as sugar cane of
good quality was not available in sufficient quantity
in the neighbourhood and also as it suffered from
ravages of flood.
With a view to improve its
business the appellant removed its
factory from
Sitalpur to another place called Garaul and in the
process of dismantling the building and machinery,
transportation from Sitalpur to Garaul and refitting
the machinery at the latter place, it incurred a total
expense of Rs. 3,19, 766/- in the year of account. In
the assessment of its income-tax. it claimed a deduction of these expenses as revenue expenses. That
claim was rejected.
The questions referred concern
these expenses.
The first question was this :
"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 titting 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?"
Considering the matter apart from the authorities,
it seems to us impossible that the expenditure could
be revenue expenditure. It was clearly not incurred
for the purpose of carrying on the concern but it was
incurred in setting up the concern with a greater
advantage for the trade than it had in its previous
set up. The expenditure was not incurred in earing
any profit but only for putting its factory, that is,
its capital, in better shape so that it might produce
larger profits, when worked. It really went· towards
effecting a permanent improvement in the profit
making machinery, that is, in the capital assets.
It
was, therefore, a capital expenditure and not a
revenue expenditure .
Sitalpur Suz•r
Works Ltd.
v.
Commissiontr ef In·
come·lax, ·Bihcr
and 0 ri.ssa ·
Sarkar J.
IH!
Sit.llflr ""!."'
Wort. Lt •
••
~•ii•·
,..;14a, Bk
adOriu•
s,,,,,., J.
20
SUPRElME aou&t REPORTS [1964'] vot.
The case, furthermore, is completely governed
by authorities. We think it comes clearly within the
well-known dictum of Viscount Cave in Atherton v.
British Insulated and Helsby Cables Ltd (1). That
"when an expenditure is made, not only once and
for all, but with a view to bringing into existence
an asset or an advantage for the enduring benefit of
a trade, I think that there is very good reason (in the
absence of special circumstances leading to an
opposite conclusion) for treating such an expenditure
as properly attributable not to revenue but to
capital". The test formulated by Viscount Cave
has been accepted by this Court: see Assam Bengal
Cement Co. Ltd. v. The Commissioner of Income-tax
West Bengal ('). aere the expenditure produced
an enduring advantage in the shape of transfer to
a better factory site, an advantage which enabled
the trade to prosper and an advantage that could be
expected to last for ever. It was an expense properly
attributable to
capital under Viscount Cave's
dictum.
Mr. Pathak did not question the authority of
the test laid down in Atherton's case (1), but said
that that test had
110 application in the present case
as it would not apply unless by the expenditure a
material asset or a covenant or right in the nature of
capital was acquired. We find neither principle nor
authority to support this contention. If an expenditure incurred, say for acquiring an additional plant,
is capital expenditure, an expenditure incurred in
liismantling and -refitting the existing plant at a ·
better site would be equally capital expenditure.
They would both be capital expenditure because both
were incurred for increasing the capacity of the
profit making machine to earn profits and neither
was incurred for earning the profits themselves.
In
principle, therefore, there is no reason to make a
distinction as to the nature of the expense between an
expenditure incurred for acquiring material capital
(I) (1925) 10 T.C, I~~. 192;
121 El955i 1 s.c,a, 972,
..J
'
..
' •
~ .
'
>
._;.
3 s.a.R.
SUPREME COURT REPORTS
21
asset or a legal right in the nature of capital and
an expenditure incurred for acquiring any other
advantage of an enduring nature for the benefit
of the trade. It is true that it has been said, as
Mr. Pathak pointed out, that the advantage acquired
by the expenditure must be analogous to an asset (see
Halsbury's Laws of England, 3rd ed. Vol. XX p. 162)
but that only means advantage of the nature of a
capital asset, that is to say, "an advantage to the
permanent and enduring benefit of the trade": see
ibid
p. 161. It is obviously not
nece~sary for an
advantage to be of such a nature that it must be the
acquisition of a mat~rial asset or of a chose in action.
As to the authorities, they are all against the
view for which Mr. Pathak contends. We propose to
refer to two of them only. First, there is the case ofGranif.e Supply Association Ltd. v. Kitton (1). The assessee was a company whose business was to buy and sell
granite. It found it necessary to shift to a larger
yard and in doing so incurred expenses for removal
of stones and cranes from the old to the new yard
and for re-erecting the cranes in the latter yard. It
was held that the Company was not entitled to a
deduction for these expenses. It was said that the
expenses were of the same kind as those which might
have been incurred in the buying of new cranes.
Lord MacLaren said (p. 171), "I think that the cost
of transferring plant from one set of premises to
another more commodious set of premises is not an
expense incurred for the year in which the thing
is done, but for the general interests of the business.
It is said, no doubt, that this transference does not
add to the capital value of the plant, but I think
that is not the criterion." Lord McLaren's observation_ is completely against the view advocated by
Mr. Pathak that to constitute an enduring benefit a
material asset or a right must be created.
The above case, furthermore, is indistinguish-
~
able from the case in hand.
Mr. Pathak sought to
(I) (1905) 5 T.C. l~U.
190
SiWpw s..,.,
w.,u Lil.
v.
eo..mu.;., tf I•·
eom1-ta, Bihar
-' Orit"'
Sarlar /.
1953
Sitll/pur Sugar
Wot}J Lid.
••
C1mmiuion1r of btcom1~t{l)t1 Bihar
and Orissa
Sarkar J.
22
SUPREM:E COURT REPORTS [1964] VOL.
distinguish the present case from the Granite Supply
·Association Ltd. case (1), on the ground that there
the business was not running at a loss in the old yard
and the expenses were incurred only to enlarge the
business and hence were on capital account. We
find it difficult to appreciate this distinction. Whether an expense is on capital account or not would
not depend on whether it wa:s incurred for earning
larger profits than before nor would an expenditure
be on revenue account because it was incurred for
turning a losing concern into a profitable one.
The other case to which we will refer is
Bean v. Doncaster Amalgamated Collieries Ltd. (1),
The Colliery Company was required by a statute
to incur expenses for remedial works necessary to
obviate loss of efficiency in an existing drainage
system dne to subsidence caused by the Company's
workings. The Drainage Board formed a general
drainage improvement scheme and the Company
paid a part of the expenses of the new drainage
constructed under the scheme. As a result of the
new drainage the Company was enabled to work its
seams without incurring the liability under the
statute as the new
drainage system had been so
constructed
as
to
remain
unaffected by
the
Company's
workings. It
was
contended
by
the
company
that the
payment for the new
drainage was a revenue expenditure as it had
not resulted in
the acquisition of any capital
asset, but this contention was rejected and it was
held that the expenditure was on capital account and
no deduction for it was allowable. Viscount Simon
said (p. 312), that the expenses had been incurred
"to secure an enduring advantage within the proper
application of Lord Gave' s phrase. in Atherton v.
British
Insulated
and
Helsby
Cables
Ltd.
(10 T.C. 155, at page 192)". He also quoted (p:312)
with approval the observation of Uthwatt J. in the
Court of Appeal that, "The result of the transaction ·
(I} (1005) 5 T,C, 168,
(2) (1946) 27 T,0. 29(;.
;.......," ..
<
•
3 S.C.R.
SUPREN.IE COURT REPORTS
23
clearly was that the value of the particular coal
measures-a capital asset remaining unchanged in
character-was increased both for use and exchange.
There was, therefore, as the result of the transaction,
brought into existence, not indeed an asset, but an
advantage for the enduring benefit of the trade of the
Company." Obviously, therefore, there can be an
enduring advantage acquired without an addition to
or increase in the value of any capital asset.
It is no doubt true that the distinction between
revenue expenditure_ and expenditure on capital is
very fine and often it is difficult to decide under
which class an expenditure properly falls.
No such
difficulty, however, arises in the present case. We
think, for the reasons earlier mentioned, that the
present is a plain case and we feel no doubt that
the expenses for shifting and re-erection were incurred
on capital account.
The first question referred was
clearly correctly answered by the High Court.
The appellant's case is even weaker with
regard to the other question which was this :
"Whether the assessee was entitled to claim
depreciation on the
said expenditure of
Rs. 3,19, 766/-?"
This question_ was raised presumably on the basis that
if in respect of the first question it was held that the
expenditure was on capital account, then depredation should be payable on the amount of the expenditure in the same way as depreciation is allowed on
capital. The claim for depreciation was made
under s. 10 (2) (vi) of the Income-tax Act. But as
the High Court rightly pointed out, no such deprecia·
tion could be claimed because no tangible asset had
been acquired by the expenditure which could bf'
said to have depreciated •
196J
Sital{mr 81111111
Works Ltd •
••
Commiuilnl' "./ lncom1-twt, Bi,_,
ad OrisUI
Sorw 1.
1963
Sitalpur ~·ugar
J.Yorks Ltd.
v.
Commissioner of In·
cwe·tax, Bihar
and Orissa
Sarkar J.
24
SUPREME COURT REPORTS [1964] VOL.
Mr. Pathak, therefore, put the case of the
appellant from a slightly different point of view.
He referred us to Part · v of the Form of Return
given in the Rules framed under the Act. That
Part deals with a claim for depreciation. - Column 3
of this Part requires a statement to be made for
"Capital expenditure during the year for additions,
alternations, improvements and extensions". Mr.
Pathak contended that this Part showed that depreciation is allowable on capital expenditure for
improvements, and that in view of our answer to
question No. 1 the appellant would be entitled to
depreciation on the expense as capital expenses
incurred for improvement. This is an obviously
fallacious argument. In order to be entitled to
deduction on
account of depreciation under this
Part of the Form, there has to be an improvement
of the capital asset, an increase in its value.
All
that we have here is an expense incurred for acquiring an advantage for the trade. That may or may
not be an improvement in the capital assets.
The
appellant cannot claim depreciation on the amount
spent for acquiring an advantage. Whether it could
claim depreciation on improvements effected to
capital assets is not a question referred to the
Conrt. The second question, therefore, was
also
correct! y answered in the negative by the High
Court.
This appeal is dismissed with costs.