1 to 20. [These paras are not reproduced here as they involved minor issues.] 21. The third dispute pertains to allowance of shifting expenses from Madurai to Bangalore of Rs. 2,36,353. The assessee incurred expenses of Rs. 2,36,353 for shifting of its administrative office to Bangalore and claimed it as deduction on the ground that it did not bring into existence any capital asset but it only improved the administrative efficiency with a view to achieve better results. The Income-tax Officer observed that the shifting had resulted in substantial and ever-lasting advantage to the assessee's business as could be seen from the relevant particulars of turnover and profits as per profit and loss account of the assessment year 1979-80 vis-a-vis the assessment years 1976-77 to 1978-79 as detailed in the draft assessment order dated 16-1-1982. Therefore the Income-tax Officer concluded that the expenditure was capital in nature. Consequently he disallowed the same.
The Inspecting Assistant Commissioner considered the objection of the assessee and held that the action of the Income-tax Officer was correct and is in accordance with the ratio of the decision of the Supreme Court in the case of Sitalpur Sugar Works Ltd. v. CIT [1963] 49 ITR 160, wherein the expenditure incurred by the assessee in that case in shifting its sugar factory from Sitalpur to Garwal was capital in nature by the Supreme Court and the assessee was also not entitled to depreciation as no improvement was made in the capital asset in the sense that there was no increase in the value thereof.
22. Before the Commissioner (Appeals) the assessee contended that it was inconvenient to conduct the business at Madurai but it was convenient to conduct the business at Bangalore as it was well-connected by road, rail and air to the principal places of business and branches. It was further submitted that the assessee had not raised any construction for locating its office but the offices were situated in hired buildings taken on lease and the expenditure pertained to packing the files, furniture and other office equipment and transporting them to Bangalore. It was also contended that the cases relied upon by the authorities related to permanent shifting to get rid of some disadvantages thereby creating either new capital asset or advantages of enduring nature while the shifting in the case of the assessee was a routine exercise which was necessary for the smooth conduct of the business. The Commissioner (Appeals) accepted the contentions of the assessee and observed that shifting from an inconvenient place to a more convenient place did not result in any advantage of enduring nature and even if there was any advantage it was only temporary in nature. Therefore he, held that the assessee did not derive any advantage of enduring nature and the expenditure was revenue in nature. Accordingly, he deleted the disallowance made by the Income-tax Officer.
23. The learned departmental representative reiterated the grounds taken and relied on the decisions cited therein. The learned counsel for the assessee supported the order of the Commissioner (Appeals).
After careful consideration we hold that the Commissioner (Appeals) was not correct in his decision that the expenditure had not resulted in any advantage of enduring nature to the assessee and the advantage, if any, is only of a temporary nature and the shifting was not made with a view to get any additional advantage. It is seen that the Commissioner (Appeals) has decided the issue purely from the point of view of the expenditure resulting in creation of capital asset or an advantage of enduring nature. However, the Commissioner (Appeals) has not gone into the break-up details of expenses incurred by the assessee though it has been stated before him that the entire expenditure was incurred for packing the files, furniture and other office equipments and transporting them to Bangalore. Therefore it is. clear that he has decided the issue only on the basis of first principles. The decisions relied upon by the Revenue namely, Mysore State Road Transport Corporation v. CIT [1975] 99 ITR 518 (Kar.), Sitalpur Sugar Works Ltd.'s case (supra) and India Pistons Repco Ltd. v. CIT [1983] 143 ITR 424 (Mad.) pertained to shifting of regional workshop from old place to new place, shifting of factory from inconvenient place to a better place and shifting of factory to a new place to avoid incessant labour trouble in the old place and therefore the cases proceeded on the fact whether such shifting has resulted in setting up a concern or factory with greater advantage for trade. As is observed earlier the details of expenses were not furnished before us nor it was gone into item by item by the authorities. The expenditure was incurred in the background of merger of three different companies viz., M/s. Madura Mills Co. Ltd., M/s. A&F Harvey Ltd. and M/s. J.P. Coats India Ltd., on account of which the assessee-company was formed. As a result of this merger the assessee-company had production units in various centres including the one at Madurai and the volume of the asses-see's business transactions also multiplied many times. It had to deal with numerous constituents spread over the whole length and breadth of India. There was also imperative need to make movements and communications with other cities quicker and easier. Accordingly it was considered commercially expedient to shift the administrative office to Bangalore. The Income-tax Officer has indicated in the draft assessment order that the volume of business has increased for the year under consideration compared to earlier years. In the absence of break-up details of expenses pritna facie, the expenses were incurred in setting up the administrative office in a more convenient place with a view to effect efficient control and management in the context of merger of companies.
In other words the expenditure has been incurred for the purpose of creating a permanent establishment in the form of administrative office. This expenditure has been incurred once and for all which has resulted, if not in bringing into existence an asset, in an advantage for the enduring benefit of the business of the asses-see and therefore the dictum of Lord Cave in British insulated & Helsby Cables Ltd. v.Atherton [1926] AC 205 (HL) would apply to the case of the assessee.
The establishment of the administrative office at Bangalore has effected a permanent improvement in the management and control of the profit-making machinery and therefore the expenditure is capital in nature. In this connection it is relevant to point out that though it is claimed that most of the expenses were incurred by the assessee in packing and transportation of furniture and records and the travelling of the staff, in regard to the shifting expenses paid to own employees by the Mysore State Road Transport Corporation in the case cited supra, the High Court held, confirming the order of the Tribunal, that in the background of monopoly of transport business obtained by the Mysore State Road Transport Corporation under the scheme approved by the State Government, the expenditure was held to be not an item of expenditure incurred for the year in which the shifting was done but in the general interest of business of the Corporation and resulted in an enduring benefit to the Corporation and therefore it was not a proper deduction from income. Applying the same ratio to the case of the assessee in the background of merger of three companies and substantial expansion of business all over India, the expenditure incurred by the assessee in shifting the administrative office to a new place is not incurred for the year under consideration but in the general interests of the business and resulted in enduring benefit and therefore it is not a proper deduction from the income of the year under consideration.
24. In this connection it is relevant to refer to the decisions of the Madras High Court in the case of India Pistons Repco Ltd. (supra), wherein the test of enduring benefit has not been accepted as an infallible principle but the test whether the expenditure incurred resulted in a benefit which is in the capital field or in the revenue field so to say was applied. Although according to the assessee there is no case of dismantling building, plant and machinery and erecting them in the new place of administrative office nonetheless the expenses were incurred not for carrying1 on the business but to establish the administrative office in a new place the benefit of which endured not only for the year under consideration but also for all the years to come. Therefore we are not in agreement with the observation of the Commissioner (Appeals) that shifting of administrative office is purely of temporary nature and it was not made with a view to get any additional advantage. The Commissioner (Appeals) has also noted that the shifting was necessitated by the growth of the business which is the vital fact and for this purpose the shifting of administrative office was done. Since the authorities have not gone into the question of bifurcation of item-wise expenses which are revenue and capital in nature we decline to go into the same, as the assessee has not furnished such details before us. Further reliance can be placed on the decision in the case of Granite Supply Association Ltd. v. Kitton (Surveyor of Taxes) [1905] 5 TC 168, wherein the claim of expenditure incurred for shifting the place of business was rejected as an admissible expenditure and the relevant portion of the judgment reads as under : 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 it is not the criterion. There are costs that would not properly be set against the income of the year, and which yet may not add to the capital value. Suppose a person is imprudent enough not to insure his premises or his goods, which can be insured and they are burnt down, and he has to replace the building, he could not be allowed to charge the new building against the income of the year, although the putting of it up does not add to the value of his property, but merely enables it to maintain its original value. I agree, therefore, that the cost of re-erecting the cranes and the cartage of materials, being a thing not done for the benefit of the one year, is not a proper deduction from income.
The Karnataka High Court has approved the above observation of Lord McLaren by observing as under at page 523 in Mysore State Road Transport Corpn.'s case (supra) : The above statement of law is a clear answer to the contention of the Corporation. The cost of transferring the regional workshop to new premises is not an item of expenditure incurred for the year in which the shifting was done, but for the general interests of the business of the Corporation and its enduring benefit to the Corporation and therefore is not a proper deduction from income.
It is pertinent to observe that the contention that the shifting of the administrative office to Bangalore has not resulted any additional capital for there was only shifting from one rented premises to another is not tenable in view of the observation of Lord McLaren in the case of Granite Supply Association Ltd. (supra) extracted above.
25. In the circumstances we hold that the Commissioner (Appeals) was not justified in treating the expenditure as revenue expenditure.
Consequently we reverse the order of the Commissioner (Appeals) on this point and restore the order of the Income-tax Officer.
26 to 28. [These paras are not reproduced here as they involved minor issues.] 1. I have perused the order proposed by my learned brother disposing of the two appeals filed by the assessee and the department. I respectfully agree with him on all the points in these two appeals, except in regard to ground Nos. 13 and 14 in the department's appeal relating to shifting expenses amounting to Rs. 2,36,353. This point is dealt with by my learned brother in paragraphs 21 to 25 of his order. I regret my inability to agree with him on this point for the following reasons.
2. In paragraph 2.5 of the draft assessment order dated 16-1-1982, the Income-tax Officer accepts that during the year of account the administrative offices of the assessee-company were shifted to Bangalore and that the sum of Rs. 2,36,353 represented part of the expenditure incurred towards payment of travelling expenses to staff, movement of furniture and records, etc. Thus, there is no dispute between the parties about the nature of the expenditure incurred by the assessee under this head. The dispute is only in regard to their allowability as a revenue expenditure as claimed by the assessee.
According to the department, the incurring of the expenditure in shifting the administrative offices from Madurai to Bangalore had resulted in a substantial and everlasting advantage to the assessee's business, as could be seen from the figures given in paragraph 2.5 of the draft assessment order and that the advantage was not confined to a particular year but it was designed to endure for many years to come.
Therefore the department argues that the assessee has acquired an enduring advantage of a capital nature by incurring this expenditure.
3. In paragraph 8 of his directions under Section 144B(4) dated 29-6-1982, the Inspecting Asstt. Commissioner holds as follows : Admittedly the expenditure under consideration is not a normal expenditure of the business which it is required to incur.
Admittedly the expenditure was incurred with a view to make better profits. I would respectfully follow the decision in Sitalpur Sugar Works Ltd. referred to above and hold that the ITO had correctly acted in treating this expenditure as a capital expenditure.
4. The Commissioner of Income-tax (Appeals) has dealt with this point in paragraphs 3 to 5 of his appellate order. After setting out the assessee's contentions in paragraph 4, the CIT (Appeals) held that on the facts explained by the assessee it is clear that it was not a case where expenditure had been incurred for creating a capital asset or an advantage of enduring nature. He further held that if business premises was shifted from an inconvenient place to a more convenient place there was no advantage which could be called an advantage of an enduring nature, that the assessee has only shifted the place from one leased building to another and that the advantage, if any, was only of a temporary nature. After discussing the relative merits of Madurai and Bangalore from the point of view of the assessee's business, the CIT (Appeals) concluded that it could not be said that the assessee had derived any advantage of an enduring nature and that it was only a revenue expenditure incurred in shifting of office. He therefore deleted this addition.
5. In my view, this conclusion of the CIT (Appeals) is correct on facts and unassailable in law. In fact, it is not the case of the revenue that any new capital asset has been brought into existence by the incurring of this expenditure by the assessee-com-pany. According to the department, the assessee-company had secured an advantage of an everlasting nature by the shifting of the administrative offices from Madurai to Bangalore. But on the facts accepted by the Income-tax Officer in paragraph 2.5 of his draft assessment order a,nd on the facts accepted by the IAC in paragraph 8 of his directions Under Section 144B, it is clear that the expenditure in question did not bring into existence any advantage of an everlasting nature to be called an enduring advantage to regard as capital expenditure.
6. In Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, the Supreme Court held as follows : The decided cases have, from time to time, evolved various tests for distinguishing between capital and revenue expenditure but no test is paramount or conclusive. There is no all embracing formula which can provide a ready solution to the problem ; no touchstone has been devised. Every case has to be decided in its own facts, keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. But a few tests formulated by the courts may be referred to as they might help to arrive at a correct decision of the controversy between the parties. One celebrated test is that laid down by Lord Cave L.C. in AtherLon v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, 192 (HL), where the learned Law Lord stated ; ...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.
This test, as the parenthetical Clause shows must yield where there are special circumstances leading to a contrary conclusion and, as pointed out by Lord Radcliffe in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. [1965] 58 ITR 241 (PC) it would be misleading to suppose that in all cases, securing a benefit for the business would be, prima facie, capital expenditure 'so long as the benefit is not so transitory as to have no endurance at all'. There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disalloivable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and. it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case.
7. In my view, the aforesaid ratio of this decision of the Supreme Court is directly applicable to the facts of the present case. As pointed out by their Lordships it is not every advantage of enduring nature acquired by an assessee that brings the case within the principles laid down in the test of obtaining an advantage of enduring benefit. As held by Their Lordships, what is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage obtained by the assessee merely facilitates the assessee's trading operations or enabling the management and conduct of its business more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite period. In the present case, the fixed capital of the assessee is not at all touched by this expenditure. It is accepted by the departmental authorities as could be seen from paragraph 2.5 of the draft assessment order and paragraph 8 of the IAC's directions, that the expenditure in question was incurred for carrying on the business more profitably and more efficiently. Hence, I would agree with the reasoning and conclusion of the CIT (Appeals) that the expenditure in question has to be allowed as revenue expenditure by respectfully following the ratio of the Supreme Court decision in Empire Jute Co. Ltd.'s case (supra) quoted above. The other decisions relied on by the revenue and referred to and discussed in paragraphs 23 and 24 of the order of my learned brother turned on their peculiar facts and are hence not applicable to the facts of the present case. It would be sufficient to point out that in all those cases a capital asset was brought into existence as a result of the shifting expenditure incurred. Therefore, they are clearly distinguishable on facts from the present case. I would therefore respectfully follow the ratio of the decision of the Supreme Court in Empire Jute Co. Ltd.'s case (supra) and uphold the order of the CIT (Appeals) allowing the assessee's claim in the present case.
8. In the result, I would dismiss the department's appeal on this point by rejecting ground Nos. 13 and 14 in the departmental appeal.
1. This case is referred to me for my opinion as Third Member as there is difference of opinion between the Members, Madras Bench 'A' who heard the appeals.
2. The assessee is a public limited company having business on a very large scale. For the assessment year under appeal, one of the claims made by the assessee was for the deduction of a sum of Rs. 2,36,353 incurred for shifting its Administrative Office from its earlier location in Madurai to its new location in Bangalore. Earlier the Administrative Office was at Madurai, Tamil Nadu State, where its Registered Office also was located. In the accounting year, it appears three companies which have got some interconnection, namely, M/s A & F Harvey Ltd., M/s Madura Mills Co. Ltd. and M/s J.P. Coats India Ltd. were amalgamated and a new company in the name of M/s Madura Coats Ltd., the assessee-company before me, was formed. After this amalgamation, it was found that Madurai was not suited for its administrative purposes because of various difficulties and problems in reaching places, communication, etc. It was, therefore, decided to shift its Administrative Office from Madurai to Bangalore in Karnataka State. What was shifted from Madurai to Bangalore were only files, furniture, etc. Some expenditure was also incurred in travelling for personnel involved so that the total expenditure came to R.s. 2,36,353.
This claim was disallowad by the Income-tax Officer, Central Circle I, Madurai, on the ground that by incurring this expenditure, the assessee shifted its Administrative Office thereby securing a permanent advantage of enduring nature. The assessee-company claimed before the ITO that the office-shifting expenses did not bring into existence any capital asset and the same was incurred only to improve the administrative efficiency and reliance was pla,ced on the decisions of the Supreme Court in the case of Lakshmiji Sugar Mills Co. (P.) Ltd. v.CIT [1971] 82 ITR 376 and Empire Jute Co. Ltd.'s case (supra). The ITO, however, as mentioned above, took a different view because he found that there was a progressive increase in turnover and profit and that was possible only by the shifting of the Administrative Office from Madurai to Bangalore and this endured for a permanent advantage.
3. When the matter came on appeal before the CIT(A), he observed after examining the claim of the assessee, that the assessee did not acquire any advantage of an enduring nature or of a permanent character by incurring this expenditure. The assessee-company had only shifted its Administrative Office from one rented building to another rented building and the advantage was only of a temporary nature and no construction of building took place. The CIT(A) also observed that the shifting was necessitated by the growth of business and the decline in importance of Madurai as a commercial centre due to various factors.
4. Against this order of the CIT(A), the Department preferred an appeal before the Tribunal. The learned Accountant Member, who wrote the leading order, considered this expenditure to be of capital expenditure as in his opinion this expenditure brought into existence an advantage of enduring nature to the assessee-company. He relied upon the judgment of the Karnataka High Court in the case of Mysore State Road Transport Corporation (supra) and another decision of the Supreme Court in Sitalpur Sugar Mills Works Ltd.'s case (supra). He also placed reliance upon a decision of the Madras High Court in India Pistons Repco Ltd.'s case (supra). Further, the learned Accountant Member found that the observations made by the House of Lords in the case of Granite Supply Association Ltd. (supra) were quoted with approvel by the Karnataka High Court in Mysore State Road Transport Corpn.'s case (supra).
Relying on these observations, he held that the result of shifting the Administrative Office from Madurai to Bangalore did result in bringing to the assessee-company an enduring advantage because it endured for the general interest of the business of the company.
5. The learned Judicial Member did not agree with these observations inasmuch as, in his opinion, the law enunciated by the Supreme Court in the case of Empire Jute Co. Ltd. (supra) was more apposite and more applicable. Quoting from the Supreme Court decision in Empire Jute Co.
Ltd.'s case, (supra), the learned Judicial Member held that what was material to consider was the nature of the advantage in a commercial sense and it is only when the advantage is in the capital field that the expenditure could be called a capital expenditure and would disqualify for allowance but if the advantage was only to facilitate the assessee's trading operations or enabling the management and conduct of its business more efficiently or more profitably leaving the fixed capital untouched, the expenditure would be on revenue account even though the advantage might endure for an indefinite period. He found that the draft assessment order and the IAC's directions clearly showed that the expenditure in question was incurred for carrying on business more profitably and more efficiently. He also held that the decisions relied upon by the Revenue and referred to by the learned Accountant Member were distinguishable because they turned on the peculiar facts as in all those cases a new capital asset was brought into existence by the shifting expenditure. It was in these circumstances that the difference of opinion arose and the following point of difference was referred for the opinion of the Third Member : Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,36,353 incurred by the assessee for setting up its administrative offices at Bangalore is allowable as revenue expenditure in the computation of its business income 6. I have heard the learned counsel for the assessee, Shri R.Vijayaraghavan, and also the learned Departmental Representative, Shri V.D. Gopal, at sufficient length. The learned Departmental Representative pointed out that the shifting of the Administrative Office must be seen not in the context of shifting of few files or almirahs but in the context of the amalgamation of the three companies and as a part of the infrastructure. He submitted that the administration is a integral part of the infrastructure of any organisation. It is only by proper exploitation of the infrastructure by efficient administration and management, a concern would either make profit or incur loss. The administration thus having become an integral part of the infrastructure, any improvement thereupon by incurring expenditure would certainly bring in an advantage of enduring nature and that expenditure would be always on capital account and not on revenue account and, therefore, the decisions relied upon by the learned Accountant Member, namely, Sitalpur Sugar Works Ltd.'s case (supra), Mysore State Road Transport Corpn.'s case (supra) and India Pistons Repco Ltd.'s case (supra) were just and apposite. He also submitted that the Patna High Court in a recent case reported in CIT v.Jamshedpur Engg. & Machine Mfg. Co. Ltd. [1986] 157 ITR 730 had decided the direct issue. There, when the Head Office was shifted from Jamshedpur to Calcutta, the expenditure incurred on shifting was held to be a capital expenditure. This being the direct decision which also considered Sitalpur Sugar Works Ltd.'s case (supra) relied on by the learned Accountant Member, must be taken to have clinched the issue in favour of the Revenue and following that decision, the expenditure must be held to be a capital expenditure. This is the quintessence of the argument of the learned Departmental Representative.
7. The learned representative of the assessee, on the other hand, submitted that the Patna High Court decision, spoken of highly as clinching the issue, was not really applicable because there what was shifted was the Head Office of the company and not the Administrative Office and according to the learned Advocate for the assessee, it made all the difference. Referring to the Madras High Court decision in India Pistons Repco Ltd.'s case (supra), he submitted that the expenditure incurred on dismantling the old factory and transporting the plant and machinery elsewhere was only held to be a capital expenditure and in that decision the expenditure incurred on transporting of raw material and other materials was not considered as capital expenditure and, therefore, that decision must be taken to be an authority for the proposition, and binding on the Tribunal also, that expenditure incurred other than on dismantling and re-erection of machinery should be of revenue nature and as in this case the expenditure was incurred only on shifting of files, furnitures, etc., and not on dismantling and re-erection, the entire expenditure should be held to be revenue expenditure. He submitted that it was a common ground that the factory was never shifted and it was only for more convenient and efficient management that the Administrative Office alone was shifted, and following the enunciated law by the Supreme Court in Empire Jute Co. Ltd.'s case (supra), any expenditure incurred for more convenient and efficient management of business should be held to be revenue expenditure and as it was so held by the learned Judicial Member, the amount must be allowed as an allowable deduction. He also submitted that the recent trend of judicial decisions was to allow even technical know-how as revenue expenditure. Such being the case, the expenditure incurred on shifting of files, furnitures, etc., from one rented premises to another rented premises should not be held to be of capital nature. Referring to another decision given by the Madras High Court in CIT v. Madras Auto Service Ltd. [1983] 13 Taxman 378, he submitted that by incurring this expenditure on shifting the assessee-company was able to save a lot of expenditure which it would have otherwise incurred on travelling, etc., and as such, there was saving in the total outgo on the revenue account and, therefore, the amount incurred must be held to be revenue expenditure. The analogy he sought to draw was that in the case of Madras Auto Service Ltd. (supra), the assessee agreed to demolish the building and re-build a new one at its own cost without claiming ownership in view of the low rents proposed by the landlord. As against rent of Rs. 1,000 to Rs. 2,000 demanded by the landlord, the prevailing rent in that locality was Rs. 12,000 per month and as it was worthwhile accepting the terms, the assessee entered into the tenancy by demolishing the construction and re-building in its place raised a new construction and incurred an expenditure of about Rs. 2,12,732 in two years time and this was held to be on revenue account. Similarly, here also the assessee-company was able to save lot of expenditure on travelling. Finally, he submitted that the Calcutta High Court in the case of CIT v. Karan-pura Development Co. Ltd. [1983] 144 ITR 538 held that the expenditure incurred by shifting laboratories to new premises was of revenue nature allowable Under Section 37(1) and when shifting of laboratories was held to be revenue expenditure there was no reason why shifting of Administrative Office, which meant only files, typewriters and almirahs, should not be held to be revenue expenditure.
8. After ca,reful consideration of all the submissions and after perusing the orders of my learned Brothers and the authorities below, I have come to this conclusion that the expenditure incurred in this case is of revenue nature and not of capital nature. The Departmental Representative submitted that the Patna High Court in the case of Jamshedpur Engg. & Machine Mfg. Co. Ltd. (supra), clinched the issue and, therefore, I should follow it. I will, therefore, look into this case first. In this case, the assessee-company had its head office at Jamshedpur. It was a subsidiary company of its holding company which had its registered office at Calcutta. The assessee-company incurred huge expenses in shifting its head office from Jamshedpur to Calcutta.
The claim of the assessee to allow this expenditure was disallowed by the Income-tax Officer but the AAC allowed the assessee's claim, The Tribunal confirmed the order of the AAC. But, on a reference at the instance of the Revenue, the Patna High Court held that there were advantages by shifting the head office from Jamshedpur to Calcutta, that the shifting of the head office was not a regular feature that the advantage derived from shifting would undoubtedly be of an enduring character and was to last for ever and though the expenditure incurred on account of shifting was incidental to the business of the factory, yet a distinction had to be drawn between expenses which were for securing an advantage of an enduring nature and expenses for activities which were of recurring nature, and the expenditure incurred in this case by shifting was capital expenditure. In its opinion, whether there was shifting of factory or shifting of the head office was inconsequential. It relied upon the decision of the Supreme Court in Sitalpur Sugar Works Ltd.'s case (supra). Now, this is a case where the head office of the company was shifted from one place to another place.
Shifting of the hea,d office of the company is somewhat akin to the capital of the State. It does involve a new set up which gives a permanent advantage to the assessee-company unlike in the case of an administrative office which is temporary in character and changes with the exigencies of business unlike in the case of head office. Secondly, a close reading of the Patna High Court decision shows, although it is not very clear, that the dispute there related to the allowance of a sum of Rs. 3.000 as fees paid to the lawyers. That amount was claimed as an expenditure incurred in connection with the shifting of head office. If the shifting of head office was held to be a capital expenditure, the amount paid to the lawyer would also be on capital account, but if the shifting of head office was on revenue account the fee paid to the lawyer would be on revenue account. While the ITO held it to be on capital account, the AAC and the Tribunal held that to be on revenue account. But, the Patna High Court relying upon the Supreme Court decision in the case of Sitalpur Sugar Works Ltd. (supra) held that the shifting of the factory gave an enduring advantage in the shape of transfer to a better factory site enabling thereby the trade to prosper, an advantage expected to last for ever. In the case of shifting of head office, certain formalities have to be gone through and certain permissions have to be obtained from the Government and as it was held to be akin to shifting of a factory, the decision was rendered in favour of the Revenue holding it to be capital expenditure.
But, here in the case before me, the expenditure incurred related only to shifting of a large number of files, furnitures and typewriters and transport of personnel. This expenditure was not like payment of fee to lawyer for shifting of head office. This distinguishing feature has to be borne in mind in applying the ratio of the decision of the Patna High Court to the facts of this case. The Calcutta High Court in the case of Karanpura Development Co. Ltd. (supra), where the facts were that the assessee therein incurred an expenditure in shifting its laboratories from one premises to another and claimed that expenditure as revenue expenditure, found that the expenditure included the expenses for refitting the plant and apparatus in the new premises.
Agreeing1 with the view expressed by the Tribunal, the Calcutta High Court held on a reference at the instance of the Revenue, that the expenses incurred in shifting the assessee's laboratories to the new premises was revenue expenditure allowable under Section 37(1) of the Income-tax Act. It considered all the cases that were considered and relied upon by the learned Accountant Member in his order and also the decision of the Supreme Court in Empire Jute Co. Ltd.'s case (supra), the case relied upon by the learned Judicial Member in support of his view. Thus, this appears to be a case where all the decisions considered by both the Members were fully considered by a Superior Body but yet a decision in favour of the assessee was given by holding that even if the expenditure included the expenses on refitting the plant and apparatus in the new premises, yet the expenditure was of revenue nature. The Calcutta High Court declined to accept the criteria laid down by the Karnataka High Court in the case of Mysore State Road Transport Corpn. (supra) so strongly relied upon by the learned Accountant Member. In this case the Karnataka High Court quoted with approval the observations in the case of Granite Supply Association Ltd. (supra) and held that the cost of transferring the regional workshop to new premises was capital expenditure. This principle was not accepted by the Calcutta High Court as laying down the correct criteria. Speaking for the Calcutta High Court, the learned Judge Shri Sabyasachi Mukharji, as His Lordship then was, observed at page 545 as under : Learned advocate for the assessee tried to urge that where without affecting the profit-earning apparatus some expenditure was incurred in the deployment of that apparatus or in other words, in the process of earning profit, that expenditure should be allowed as a revenue expenditure. Without going into the controversy whether all expenditure incurred in connection with profit-earning apparatus would be revenue expenditure, in our opinion, the proper approach should be what was the predominant purpose or intention for incurring the expenditure. If the predominant purpose of incurring the expenditure was the carrying on of the business, the incidental advantage of that expenditure cannot affect its revenue character.
Again, at page 546, the learned Judge, dealing with the Supreme Court decision in the case of Empire Jute Co. Ltd. (supra) (relied upon by the learned Judicial Member), observed as under : The question was also considered by the Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, where at p. 10 of the report, the Supreme Court observed that the decided cases had, from time to time, evolved various tests for distinguishing between capital and revenue expenditure, but no test was paramount or conclusive. There was no all embracing formula which could provide a ready solution to the problem no touchstone had been devised. The Supreme Court further observed that every case had to be decided on its own facts, keeping in mind the broad picture of the whole operation in respect of which the expenditure had been incurred.
Indeed, several tests were involved. Bearing: these tests in mind and in the background of the facts as found by the Tribunal, we are of the opinion that in this case the Tribunal arrived at the correct conclusion in allowing this expenditure as revenue expenditure.
Thus, to my mind, it appears that the ratio laid down by the Calcutta High Court in Karanpura Development Co. Ltd.'s case (supra) to be more closer to the facts before me rather than the facts found in the Patna High Court in Jamshedpur Engg. & Machine Mfg. Co. Ltd.'s case (supra).
I do not think I need refer to Mysore State Road Transport Corpn.'s case (supra) Sitalpur Sugar Works Ltd.'s case (supra) and India Pistons Repco Ltd.'s case (supra) because, the ratio laid down in these decisions was found by the Calcutta High Court to be not applicable to a situation of this kind. I am, therefore, not referring: to them in great detail.
9. As a matter of fact, it is an undisputed fact that the entire expenditure incurred in this case was only on shifting of files, typewriters, furnitures etc. from one rented premises in Madurai to another rented premises in Bangalore and no permanent asset was acquired. When even shifting of laboratories which involved demolishing of an asset at one place and reconstruction at another place the expenditure incurred therein was held to be of revenue nature, it must be more so when no such expenditure at all was incurred except the freight on shifting of files and other furnitures of the office.
Suppose in the same place if the office is shifted from one rented premises to another rented premises, the expenditure incurred in shifting the office furniture, files etc. would certainly not be held to be on capital account. Merely because such expenditure was incurred in shifting the Administrative Office from one city to another city, it does not alter the character and nature of the expenditure. A businessman would always try to secure higher and higher advantages and would always aim at retaining the advantages so secured for as long a period as possible. In every such expenditure some enduring benefit is involved but that does not mean a permanent asset has been created in the sense that could be held to be capital expenditure. Therefore, ratio of the Supreme Court decision in Empire Jute Co.'s case (supra) is, in my opinion, applicable to the facts of this case rather than the decision, of the Supreme Court in Sitalpur Sugar Works Ltd.'s case (supra) where the factory premises were shifted from one place to another place.
10. The learned Departmental Representative tried to argue that in the case of Empire Jute Co. Ltd. (supra), the assessee tried to acquire more loom hours thereby retaining the same capacity and it was in that context it was held by the Supreme Court that the expenditure was of revenue nature but that was not so here. With respect to the learned Departmental Representative, I am unable to draw a parallel between these two. The principle laid down in the case of Empire Jute Co. Lid.
(supra) is that it is not that every expenditure incurred will bring in an asset of enduring nature and that there was no all embracing formula which could provide a ready solution to every problem. What is, therefore, to be seen is the nature of the expenditure involved rather than the enormity of the expenditure. Keeping in view these principles, I am of the opinion that the expenditure in shifting the Administrative Office from Madurai to Bangalore is only a revenue expenditure and not a capital expenditure and the test of comparing the turnover, the resultant profit, to determine the nature of the expenditure is not really safe because as I have observed earlier, every expenditure incurred by a businessman would bring in some advantage as per his calculation. Sometimes it may go wrong also. But what has to be seen is whether it is for the more efficient and convenient method of management. I also find force in the argument of the learned counsel for the assessee that at times technical know-how purchased at considerable cost was being held to be on revenue account and on the same analogy the expenditure incurred in shifting the Administrative Office could not be held to be on capital account. I may mention here that I find that the analogy sought to be drawn from the decision of the Madras High Court in Madras Auto Service Ltd.'s case (supra) is not proper because I do not find on facts stated that by incurring this expenditure the assessee was able to save any expenditure under any other revenue head like in that case.
11. The matter will now go before the regular Bench so that the appeal can be disposed of on this point according to the view of the majority.