Judgment:
This appeal by the Revenue is directed against the order of the CIT(A-I), Ahmedabad dt. 25th Nov., 1988 wherein, inter alia, he has held that the expenditure of Rs. 85,400 incurred by the assessee for obtaining high tension power line from Ahmedabad Electricity Co. (AEC) is a revenue expenditure to be allowed as a deduction from the profits of the business by following the judgment of the Gujarat High Court in the case of CIT vs. Gujarat Mineral Development Corporation (1981) 132 ITR 377 (Guj). The Revenue has taken grounds to urge that the "CIT(A) erred in law and on fact in allowing expenditure of Rs. 85,400 incurred for obtaining high power tension line from Gujarat Electricity Co." and, therefore, his order should be set aside and that of the ITO be restored.
2. The relevant facts are that the assessee is a registered firm carrying on the business of printing cloth and selling the same on wholesale for semi-whole sale basis. The assessment year involved is 1985-86. The assessee filed a return on 29th Nov., 1985 declaring total income of Rs. 2,02,093. However, the ITO determined the total income at Rs. 7,47,800 which included an addition of Rs. 1,00,600 pertaining to payment made to AEC. The ITO found that the assessee made payments to the AEC for high tension power line of which the estimated cost on job work amounted to Rs. 85,400 while the security deposit amounted to Rs. 16,200. The security deposit was to be adjusted against the future bills to be received from the AEC and this was treated as a deposit and, therefore, the ITO disallowed the same. As regards Rs. 85,400 the ITO has not followed the judgment of the Gujarat High Court on the ground that the Department has not accepted the said judgment.
Therefore, the entire amount was disallowed in para 8 of his assessment order.
3. On appeal, the CIT(A) held that on similar facts and circumstances, the Gujarat High Court decided the issue in favour of the assessee in the case of CIT vs. Gujarat Mineral Development Corporation (supra). In view of this judgment, which was binding on him, he directed the amount to be allowed as revenue expenditure.
4. At the time of hearing, the learned Departmental Representative as well as the learned counsel for the assessee have been duly heard. At the outset we have to observe that the reason given by the ITO for not following the judgment of Gujarat High Court is not correct because unless and until the said judgment is stayed or reversed by the Supreme Court, it is binding on all the authorities under its jurisdiction. As regards merits, the ratio in the case of Gujarat Mineral Development Corpn. (supra) applies with equal force to the case of the case of the assessee because the facts are similar. It is seen that the ownership of the equipment for transmission of the high tension power always remained with the AEC and the payment has been made only for obtaining the facility of high tension power to the business, in order to carry on the same efficiently and more profitably, and therefore, the expenditure fell in the revenue field and not capital field. The Gujarat High Court in the case of Gujarat Mineral Dev. Corpn. (supra) considered the expenditure incurred on lines, cables and transmission lines which remained the property of the Gujarat Electricity Board, connected to the benefication plant of the assessee and which enabled it to carry on the business more efficiently and which did not affect the capital field, and held that the expenditure was revenue in nature although the benefit would endure for a number of years. Thus the dicta laid down by the Supreme Court in the case of Empire Jute Company Ltd. vs. CIT (1980) 124 ITR 1 (SC) has been extended to a case where the expenditure fell in the revenue field and not capital filed even though the advantage derived from it had enduring benefit. In the case of CIT vs. Associated Cement Co. Ltd. (1988) 172 ITR 257 (SC), the assessee-company provided water pipe lines and electricity facilities to the Municipality in consideration of non-payment of municipal taxes for 15 years. The pipe lines, supply of electricity, etc., provided became the property of the municipality. The amount spent for water pipe lines and accessories were held to be revenue expenditure on the ground that the advantage was secured only in the field to revenue because the pipe lines, etc., provided became the property of the municipality. In the case of CIT vs. National Machinery Manufacturers Ltd. (1991) 191 ITR 483 (Bom), the Bombay High Court considered the contribution made by the assessee-company to the Maharashtra Industrial Development Corporation for laying pipe lines to the assessees factory and residential estate and held it to be a revenue expenditure because the pipe lines always belonged to the Maharashtra Industrial Development Corporation. In view of the aforesaid rulings and the binding judgment of the Gujarat High Court, we uphold the order of the CIT(A) and reject the ground taken by the Revenue.