A.N. Sen, J.
1. A short, though not quite simple, question of law arises for consideration in the present reference. The question, whether a particular expenditure is of a capital nature or not, may prove ticklish and intricate in the facts of a particular case. In the instant reference, such a question falls for determination. The point for consideration in the present reference is whether the expenditure incurred by the assessee on renovating the buildings, reconditioning the machinery and clearing the land of debris in one of its collieries, known as South Samla Colliery, for restarting the operation of digging coal therefrom, after a long lapse of time, during which period this colliery had remained under military occupation, is in the nature of capital expenditure or not.
2. The assessee is a registered firm which owned several collieries in West Bengal and Bihar. One of such collieries owned by the assessee is known as South Samla Colliery. South Samla Colliery was under military occupation since 1942 and was derequisitioned in 1955. This colliery could not be worked by the assessee during these years of military occupation. Expenses, however, had been claimed by the assessee during the period of military occupation on account of minimum royalty, surface rent and salary for watch and ward purposes of this colliery and had been allowed as business expenditure of the assessee by the taxing authority. The relevant assessment year is 1959-60, the corresponding previous year, i.e., the accounting year of the assessee being the Gujarati Dewali 2014 (beginning with 24th of October, 1957, and ending on 12th of November, 1958). During the relevant period under consideration, the assessee incurredcertain heavy expenses amounting in all to Rs. 1,61,742 on renovating the buildings, reconditioning the machinery and clearing the land of the debris that had accumulated for over a number of years at the said South Samla Colliery for the purpose of putting the machinery in working order as well as the whole of that colliery in general to a state of resumption of mining operations from the said colliery. The assessee had claimed deduction of the said entire amount as business expenditure. The Income-tax Officer disallowed the claim of the assessee on the ground that the said expenditure incurred by the assessee was of a capital nature. The Income-tax Officer in his order held :
' The expenditure incurred by the assessee is mostly for the purpose of renovating the buildings, reconditioning the machinery and clearing the land of the bebris that has accumulated for over a number of years. This operation had to be carried out by the assessee before the actual working of the coal fields. During the military occupation period it was held by the Tribunal that the minimum royalty payable, the surface rent paid and small amount of salary for watch and ward purpose should be allowed as a business expenditure, mostly on the ground that the assessee intended to work the colliery after the Government derequisitioned it. The Tribunal observed that simply because for reasons beyond the appellant's control one of the collieries could not be worked temporarily during the years under consideration, the expenses incurred in connection with it did not cease to be business expenditure. It is, therefore, clear that at least after the colliery was handed over to the assessee and as such the various items of expenditure incurred by it for the purpose of putting the machinery in working order and bringing the colliery in general to a state when the assessee could start digging out coal had got to be treated as development or capital expenditure. The advantage gained by the assessee in various operations which it is carrying out is in any case of an enduring nature.'
3. The Income-tax Officer further held :
' The expenditure incurred by the assessee on account of salaries and wages including labour benefit, etc., amounting to Rs. 66,937 and the expenditure incurred for purchase of various stores, machine repairs, dhowrah repairs, etc., amounting to Rs. 94,805 which in all Rs. 1,61,742 will be disallowed as capital expenditure.'
4. The assessee filed an appeal before the Appellate Assistant Commissioner against the order of the Income-tax Officer. The Appellate Assistant Commissioner by his order dated 20th of July, 1962, confirmed the 6 order of the Income-tax Officer observing that Mr. Chowdhury appearing for the assessee ' did not seriously dispute the disallowance of this amount '. A further appeal was prepared by the assessee to the Income-tax AppellateTribunal and the Tribunal dismissed the appeal of the assessee. The Tribunal held in its order dated the 25th of February, 1964:
' The next contention in the appeal is directed against the disallowance of expenses in the accounts of the South Samla Colliery. The details of the expenditure disallowed have been given in the orders of the Income-tax Officer for the relevant years. We agree with the income-tax authorities that the expenditures incurred were capital in nature as the colliery was not working in the relevant years.'
5. The Tribunal having refused to state a case, the assessee moved this court. Directed by this court the Tribunal had referred under Section 66(2) of the Indian Income-tax Act, 1922, the following question of law :
' Whether, in the facts and the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the expenditure claimed by South Samla Colliery at Rs. 1,61,742 was capital in nature ?'
6. Mr. Banerjee, the learned counsel appearing on behalf of the assessee, has submitted that on the basis of the findings of the Income-tax Officer the expenditure in question should have been allowed. He argues that the Income-tax Officer has found that these expenses on renovating the buildings, reconditioning the machinery and clearing the land of the debris that had accumlated for over a number of years, had to be incurred before the actual working of the coal fields for the purpose of putting the machinery in working order and bringing the colliery in general to a state when the assessee could start digging out coal from the said colliery; and it is his argument that in view of the said finding the Income-tax Officer should have allowed the sum expended as revenue expenditure and the Income-tax Officer erred in law in holding that the said expenditure should be treated as development or capital expenditure. Mr. Banerjee had commented that the expenditure in question cannot be called development expenditure and he further comments that development expenditure cannot necessarily be equated to capital expenditure and any and every development expenditure is not necessarily capital expenditure. Mr. Banerjee has submitted that the view expressed by the Tribunal that the expenditures incurred were capiltal in nature as the colliery was not working in the relevant years, is untenable in law. Mr. Banerjee has argued that the assessee was carrying on business as colliery owners in running collieries and the assessee was working some of the collieries. It is his argument that the assessee was undoubtedly carrying on the business of running collieries as colliery owners including the South Samla Colliery, although the operation of digging coal from that colliery had remained suspended. Mr. Banerjee comments that unless the business of South Samla Colliery was continuing, no allowance for any expenditure in connection with that colliery would or could have been allowed by the Income-tax Officer. Mr. Banerjee contends.that for the purpose of carrying on business in the South Samla Colliery within the meaning of Section 10(2)(xv), it is not necessary that the process of digging out coal must actually be in operation. That the assessee was carrying on the business of the South Samla Colliery, submits the learned counsel, is recognised by the Income-tax Officer and clearly established by the fact that the Income-tax Officer allowed various other expenses incurred in connection with that colliery. The learned counsel has argued that as a result of the expenditure no new asset has been acquired by the assessee and there is no such finding by the Income-tax Officer. The learned counsel submits that it also cannot be said that as a result of the expenditure incurred on renovating the buildings, reconditioning the machinery and clearing the land of the debris, the assessee had acquired any advantage or right of any enduring nature. The whole object of the expenditure, says the learned counsel, was to enable the assessee to carry on the assessee's concern which was in existence by restarting operation of digging coal therefrom and the expenditure was not incurred to acquire any concern not already in existence. The learned counsel contends that any expenditure incurred for restarting production or manufacture, which might have remained suspended for a length of time for some reason or other, should usually never be considered to be capital in nature, unless there is something to suggest to the contrary in the very nature of expenditure incurred. The learned counsel points out that in this case the expenditure was incurred for renovating the buildings, re-conditioning the machinery and removing the debris and he comments that there is nothing in the nature of the expenditure itself to suggest that it is of capital nature. The learned counsel has argued that if any of the items of expenditure had been incurred while the colliery was being actually worked by digging out coal therefrom, there could be no question that the expenditure would be considered to be revenue expenditure and he submits that the nature or character of the expenditure cannot be changed only because the operation of working the mine by raising coal therefrom had remained suspended. The learned counsel has contended that the business of the assessee continued in the eye of law, notwithstanding temporary suspension or stoppage of raising coal from South Samla Colliery for a length of time because of the requisition by the army authorities and the expenditure that had been incurred for restarting operation of digging coal from the said colliery in the course of the assessee's business, must be considered to be revenue expenditure. In support of his submissions, the learned counsel has referred to a large number of decisions. The learned counsel has placed particular reliance on the following cases:
General Corporation Ltd. v. Commissioner of Income-tax, [1935] 3 I.T.R. 350 (Mad.), L. Ve. Vairavan Chettiar v. Commissioner of Income-tax, [1969] 72 I.T.R. 114 (Mad.), Commissioner of Income-tax v. Kirkend Coal Company, [1970] 77 I.T.R. 530 (S.C.), Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax, : [1955]27ITR34(SC) , Regent Oil Co. Ltd. v. Strick, [1966] A.C. 295, [1965] 3 All. E.R. 174, 43 T.C. 1, 73 I.T.R. 301 (H.L.), Commissioner of Income-tax v. Malayalam Plantations Ltd., : [1964]53ITR140(SC) , Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax, : [1967]63ITR207(SC) , In Re: Imperial Chemical Industries (India) Ltd., [1935] 3 I.T.R. 21 (Cal.), In Re: Hindustan Commercial Bank Ltd., [1952] 21 I.T.R. 353 (All), Commissioner of Income-tax and Excess Profits Tax v. Sri Ram Sugar Mills Ltd., [1952] 21 I.T.R. 191 (Mad.), Security Printers of India (P.) Ltd. v. Commissioner of Income-tax, [1970] 78 I.T.R. 78 (All.), Commissioner of Income-tax v. Amalgamated Development Ltd., : [1967]65ITR395(SC) , Hanuman Motor Service v. Commissioner of Income-tax, [1967] 66 I.T.R. 88 (Mys.), Commissioner of Income-tax v. Mahalakshmi Textile Mills Ltd., : [1967]66ITR710(SC) , Commissioner of Income-tax v. Mysore Sugar Co. Ltd., [1962] 46 I.T.R. 649 (S.C.), Commissioner of Income-tax v. Harish Chander Jagannath Prasad, [196l] 43 I.T.R. 231 (Punj.), Mohanlal Hargovind of Jubbulpore: v. Commissioner of Income-tax, [1949] 17 I.T.R. 473 (P.C.), Commissioners of Inland Revenue v. Carron Company, [1968] T.C. 18 (H.L.).
7. Mr. Pal, learned counsel appearing on behalf of the department has submitted that in the facts of the instant case the taxing authorities and the Tribunal have correctly held the expenditure in question to be of capital nature. He has argued that the Income-tax Officer has found that this colliery was under military occupation since 1942 and was derequisitioned in 1955 and that after the colliery was handed over to the assessee, the various items of expenditure had to be incurred by it for purposes of putting the machineries in working order and bringing the colliery in general to a state when the assessee could start digging out coal. It is his argument that, as a result of not working the colliery for such a length of time, the asset had become a dead asset. The expenditure incurred by the assessee, according to Mr. Pal, in reviving or restoring the dead asset to life and to its working condition, is really in the nature of preliminary or initial expense for setting up the said business, and, in any event, the said expenditure must be considered to have been incurred for the development of the business. Mr. Pal has argued that the said expenditure has indeed the effect of acquisition of new capital asset and resuts in an enduringadvantage or benefit to the company. Mr. Pal submits that in the present case, the assessee could not carry on any business with Samla Colliery for about 17 years during the period of requisition and the non-user of the said colliery for such a long period led to such a position that without this expenditure on renovating the building, reconditioning the machinery and removing the debris, the assessee would not be able to work the said colliery. It is his submission that an asset which has been reduced to a non-profit earning condition because of non-user for a long time, becomes in a sense a new asset altogether, when it is restored to its profit earning condition by expenditure incurred on renovating and reconditioning the same and such expenditure, in any event, acquires for the company an advantage of an enduring nature. Mr. Pal has argued that the expenditure can never be considered to be expenditure on current repairs, as work of repairs must have accumulated during the period of requisition and it is Mr. Pal's argument that expenditure incurred on accumulated repairs should not be considered to be revenue expenditure. Mr. Pal contends that there is a good deal of difference between an expenditure incurred in the course of carrying on the process of the income fetching operation and an expense incurred for the purpose of enabling the assessee to start the process of income fetching operation, and it is the contention of Mr. Pal that any expense incurred in preserving and maintaining the income fetching asset may be revenue expenditure, but any expense incurred in restoring a non-income fetching asset to an income-fetching condition is of capital nature. Mr, Pal relies very strongly on the following observations of Lord Blackburn in the case of United Collieries Ltd. v. Commissioners of Inland Revenue, ) [1929] 12 T.C. 1248, 1254 (C. Sess.).
' The question into which category any particular expense must fall is always one of degree, but it seems to me that any deduction to be allowed against revenue must bear some such relationship to the yearly profits on which the tax is levied as would arise from the fact that it was incurred for the purpose of keeping the profit-yielding subject in a profit-yielding condition during the year in which the tax was incurred. This is not what happend here. The lower seam was allowed to get into a non-profit-earning condition. The expenditure which the appellants ask to be deducted was incurred in restoring it to, and not in keeping it in, a profit-earning condition. In these circumstances, it seems to me inevitable that the sum must be treated as a capital expenditure and not as a revenue expenditure.'
8. Mr. Pal has also referred to a number of decisions and has mainly relied on the following cases :
United Collieries Ltd. v. Commissioners of Inland Revenue, Hyam v. Commissioners of Inland Revenue, [1929] 14 T.C 479 (C. Sess), Jackson v. Laskers Home Furnishers Ltd., [1956] 37 T.C. 69, [1958] 33 I.T.R. 663 (Ch. D.), Tata Hydro-Electric Agencies Ltd. v. Commissioner of Income-tax, [1937] 5 I.T.R. 202 (P.C.)., Jansatta Karyalaya v. Commissioner of Income-tax, [1964] 54 I.T.R. 792 (Guj.), Sitalpur Sugar Works Ltd. v. Commissioner of Income-tax, [1963] 49 I.T.R. (S.C.) 160 and Humayun Properties Ltd. v. Commissioner of Income-tax, [1952] 44 I.T.R. 73 (Cal.).
9. We do not consider it necessary to deal with the large number of cases cited from the Bar. Whether any particular expenditure is revenue or capital must necessarily depend on the facts of each particular case. Decisions in cases arising out of different facts are of no material assistance in deciding the question involved in the present proceeding. In the case of Regent Oil Co. Ltd. v. Strick, Lord Reid at pages 312-313 aptly observes:
' Whether a particular outlay by a trader can be set against income or must be regarded as a capital outlay has proved to be a difficult question. It may be possible to reconcile all the decisions but it is certainly not possible to reconcile all the reasons given for them. I think that much of the difficulty has arisen from taking too literally general statements made in earlier cases and seeking to apply them to a different kind of case which their authors almost certainly did not have in mind--in seeking to treat expressions of judicial opinion as if they were words in an Act of Parliament. And a further source of difficulty has been a tendency in some cases to treat some one criterion as paramount and to press it to its logical conclusion without proper regard to other factors in the case.'
10. It may be noted that the legislature in its wisdom has chosen not to give any definition of the expression ' capital expenditure '. The expression has to be considered in the light of the facts and circumstances of each particular case and must be construed in a business sense save in so far as there may be rules of constructions applicable to it. The Privy Council in the case of Mohanlal Hargovind of Jubbulpore v. Commissioner of Income-tax:
' There is no definition of that expression which must in their Lordships' opinion be construed in a business sense save in so far as there may be rules of construction applicable to it.'
11. The Supreme Court in the case of Bombay Steam Navigation Company Private Ltd. v. Commissioner of Income-tax, [1965] 56 I.T.R. 52, 59, [1965] 1 S.C.R. 770 (S.C.).observed :
' Whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of principles ofcommercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure.'
12. The aforesaid observations were also quoted by the Supreme Court in the case of Commissioner of Income-tax v. Kirkend Coal Co.
13. In the case of Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax, the question whether a particular expenditure was revenue expenditure or of capital nature came up before the Supreme Court for consideration. In determining the question the Supreme Court considered a number of decisions, both of the English courts and of Indian courts, and observed :
' In Banarsidas Jagannath, In re, [1947] 15 I.T.R. 185 (Lah.)(F.B.] a Full Bench of the Lahore High Court attempted to reconcile all these decisions and deduced the following broad tests for distinguishing capital expenditure from revenue expenditure. The opinion of the Full Bench was delivered by Mr. Justice Mahajan, as he then was, in the terms following : ' It is not easy to define the term ' capital expenditure' in the abstract or to lay down any general and satisfactory test to discriminate between a capital and a revenue expenditure. Nor is it easy to reconcile all the decisions that were cited before us for each case has been decided on its peculiar facts. Some broad principles can however, be deduced from what the learned judges have laid down from time to time. They are as follows :
1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment: vide Lord Sands in Commissioners of Inland Revenue v. Granite City Steamship Co., [1927] 13 T.C. 1, 14 (C. Sess.)In City of London Contract Corporation v. Styles, [1887] 2 T.C. 239, 243 (C.A.).Bowen L.J. observed as to the capital expenditure as follows:
'You do not use it 'for the purpose of your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern.' 2. Expenditure may be treated as properly attributable to capital when it 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: vide Viscount Cave L.C. in Atherton v. British Insulated and Helsby Cables Ltd., [1926] A.C. 205 , [1925] 10 T.C. 155 (H.L.)If what is got rid of by a lump sum payment is an annual businessexpense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. Thus, if labour saving machinery was acquired, the cost of such acquisition cannot be deducted out of the profits by claiming that it relieves the annual labour bill, the business has acquired a new asset, that is, machinery.
The expressions 'enduring benefit' or 'of a permanent character ' were introduced to make it clear that the asset or the right acquired must have enough durability to jtstify its being treated as a capital asset.
3. Whether, for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. Fixed capital is what the owner turns to profit by keeping it in his own possession. Circulating or floating capital is what he makes profit of by parting with it or letting it change masters. Circulating capital is capital which is turned over and in the process of being turned over yields profit or loss. Fixed capital, on the other hand, is not involved directly in that process and remains unaffected by it.'
14. This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the principles which emerge from the authorities. In cases where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital expenditure.
15. The question however arises for consideration where expenditure is incurred while the business is going on and is not incurred either for extension of the business or for the substantial replacement of its equipment. Such expenditure can be looked at either from the point of view of what is acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure.
16. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital.
17. If it was part of the fixed capital of the business it would be of the nature of capital expenditure and if it was part of its circulating capital it would be of the nature of revenue expenditure. These tests are thus mutually exclusive and have to be applied to the facts of each particular case in the manner above indicated. It has been rightly observed that in the great diversity of human affairs and the complicated nature of business operations it is difficult to lay down a test which would apply to all situations.
18. One has, therefore, got to apply these criteria one after the other from the business point of view and come to the conclusion whether on a fair appreciation of the whole situation the expenditure incurred in a particular case is of the nature of capital expenditure or revenue expenditure in which latter event only it would be a deductible allowance under Section 10(2)(xv) of the Income-tax Act. The question has all along been considered to be a question of fact to be determined by the income-tax authorities on an application of the broad principles laid down above and the courts of law would not ordinarily interfere with such findings of fact if they have been arrived at on a proper application of those principles.'
19. In the present case the established facts are--
(i) The assessee at all material times carried on business in coal as owners of various collieries.
(ii) South Samla Colliery, one of the collieries owned by the assessee, was under military occupation since 1942 and was derequisitioned in 1955.
(iii) During the period the said South Samla Colliery remained under military occupation, the assessee did not, as he possibly could not, work the said colliery.
(iv) The assessee was, however, carrying on his business in coal andwas working some other collieries during the said period.
(v) During the period the said South Samla Colliery remained under military occupation, the assessee incurred expenditure for payment of surface rent and minimum royalty in respect of the said colliery and alsoon account of salary for staff employed in the said colliery for watch and ward purposes.
(vi) Such expenses incurr ed by the assessee in respect of the said South Samla Colliery during the period of military occupation thereof, when there could be no working of the said colliery by raising coal therefrom, had been claimed and allowed as business expenditure of the assessee.
(vii) After the said colliery was handed over to the assessee upon derequisition, the assessee during the relevant period incurred an expenditure of Rs. 1,61,742 for the purpose of renovating the buildings, reconditioning the machinery and clearing the land of the debris, accumulated over a number of years.
(viii) The said expenditure of Rs. 1,61,742 incurred by the assessee consisted of the amount of Rs. 66,937 spent on account of salaries and wages including labour benefit, etc., and of the other amount of Rs. 94,805 spent on purchases of various stores, machinery repairs, dhowrah repairs, etc.
(ix) These expenses had to be incurred by the assessee before the actual working of the coal fields for purposes of putting the machinery in working order and bringing the colliery in general to a state, when the assessee could start digging out coal.
(x) Digging operation from the said colliery had not started during the relevant period and the colliery had not started functioning or working during the relevant years.
20. In the light of the above facts found we have to determine in the instant reference, the nature of the expenditure in question whether the expenditure is revenue and allowable as such or whether it is of capital nature.
21. That the assessee was carrying on its business is beyond dispute. The assessee had various collieries to carry on its business and whether any particular colliery was being worked or not, the fact of the assessee's carrying on its business is not thereby affected. The different collieries owned by the assessee are in the nature of various sources or resources or units of production of coal in the assessee's trade. Whether all the sources are being tapped or not in the course of the business, or to put it in other words, whether all the units of production are in actual operation or not, does not affect the question of the assessee's carrying on its business, so long as the assessee carries on its business in fact in coal by working any of its sources or units. The business of the assessee has to be considered as a whole and not on the basis of its different sources of supply or units of production. An assessee does not cease to carry on its business simply because some of its units of production are not in operation or one of its sources of supply has not been or cannot be worked for some reason or other. In the instant case, the assessee must be considered to have been carrying on its businessin coal as owners of various coal mines, including the South Samla Colliery, although the said colliery was not being actually worked. The concept of carrying on business within the meaning of Section 10(2)(xv) of the Income-tax Act is a legal concept and may not necessarily be in accord with the popular concept of the expression in which actual operation, buying and selling and other incidents to business in the popular sense may be implied. The decisions in the case of General Corporation Ltd. v. Commissioner of Income-tax and also in the case of L. Ve. Vairavan Chettiar v. Commissioner of Income-tax make this position abundantly clear. We may further observe that, in the present case, the revenue authority had allowed various expenses incurred by the assessee in respect of South Samla Colliery itself. This could only have been done on the footing that the assessee was carrying on its business also in South Samla Colliery. It may also be noted that the expenditure in question has been disallowed only on the ground that it is capital expenditure and not on any other ground. This finding also clearly presupposes that the expenditure in question has been wholly and exclusively laid out for the purpose of the business of the assessee.
22. The only question is whether the expenditure is question is revenue expenditure or capital expenditure.
23. It is clear from the facts found in the instant case that no new or fresh asset has been acquired by the assessee with the expenditure in question. The finding is that the expenditure in question was incurred for renovating the buildings, reconditioning the machinery and for removing the debris and the further finding is that out of the total expenditure of Rs. 1,61,742 disallowed, a sum of Rs. 66,937 was spent on account of salaries and wages including labour benefit and the sum of Rs. 94,805 was spent for purchases of various stores, machinery repairs, dhowrah repairs, etc. There is no finding that there was any new construction or any addition or alteration to the existing building and the only finding is that the buildings were renovated. There is also no finding of any installation of any new machine or of any addition to the existing machinery by installation of any other machine not already in existence. The only finding is that the machinery had been reconditioned. The removal of the debris does not and cannot result in the acquisition of any new asset for the assessee. The two sums mentioned in the findings of the Income-tax Officer give further particulars and descriptions on what account the same were spent and they make the position abundantly clear. On the basis of the aforesaid findings there can be no escape from the conclusion that the expenditure in question did not result in the acquisition of any new asset for the assessee. The contention of Mr. Pal, the learned counsel for the department, that for long non-user these assets had become dead assets andwere lost to the company and the expenditure in question had to be incurred to bring these dead and lost assets back to the assessee's tangible assets and the expenditure, therefore, in reality resulted in acquisition of new assets is, in our opinion, not sound. Apart from the fact of long non-user, there is nothing to show that these assets were dead assets and were lost to the company. The coal mine, the building and the machinery were all there. There is no material, apart from the aspect of long non-user, to suggest that any of the assets had become altogether dead or had been lost to the company and have been freshly acquired by the expenditure in question. Their is no evidence to show when the building was constructed, when it was last repaired or renovated and what was its condition at the time of requisition or derequisition. Similarly, there is no evidence with regard to the nature, age, condition, kind and make of the machinery. The fact that the amount spent is large does not by itself show that the assets were dead assets or were lost to the company. On the other hand, the facts found, to which we have earlier referred, point to the contrary and they clearly establish that the buildings had only been renovated and the machinery merely reconditioned. The finding of the Income-tax Officer that the expenditure was necessarily to be incurred before the actual working of the coal fields ' for purposes of putting the machinery in working order and bringing the colliery in general to a state when the assessee could start digging out coal ' does not warrant the conclusion that the assets were all dead assets which were lost to the company. In the absence of any such finding, it will not be proper for us to come to any such conclusion on a question of fact in this reference. Incurring an expenditure on preservation of any asset threatened with extinction, does not result in acquisition of any new assets and does not necessarily become capital expenditure. In the case of Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax, the Supreme Court observed at page 213 :
' Under Section 10(2)(xv) of the Indian Income-tax Act, as amended by Act 7 of 1939, expenditure even though not directly related to the earning of income may still be admissible as a deduction. Expenditure on civil litigation commenced or carried on by an assessee for protecting the business is admissible as expenditure under Section 10(2)(xv) provided other conditions are fulfilled, even though the expenditure does not directly relate to the earning of income. Expenditure incurred not with a view to the direct and immediate benefit for purposes of commercial expediency and in order indirectly to facilitate the carrying on of the business is, therefore, expenditure laid out wholly and exclusively for the purposes of the trade. In Morgan v. Tate & Lyle Ltd., [1955] A.C. 21, 35 T.C. 367, [1954] 26 I.T.R. 195 (H.L.), the House of Lords held that expenditureincurred by a company engaged in sugar refining, in a propaganda campaign to oppose the threatened nationalization of the industry was a sum wholly and exclusively laid out for the purpose of the company's trade and was an admissible deduction from its profits for income-tax purposes. A majority of the House held that the object of the expenditure being to preserve the assets of the company from seizure and so to enable it to carry on and earn profits, the expenditure was a permissible deduction under Rule 3(a) of the Rules applicable to Cases (1) and (2) of Schedule D of the Income-tax Act, 1918.'
24. The Supreme Court, at page 215, further quoted the following observations made in the case of Commissioner of Income-tax v. Malayalam Plantations Ltd.:
'' The expression ' for the purpose of the busines ' is wider in scope than the expression ' for the purpose of earning profits '. Its range is wide : It may take in not only the day to day running of a business, but also the rationalisation of its administration and modernization of its machinery , it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title , it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business.' '
25. Any machine which goes out of order at any time becomes in a sense temporarily dead or lost in its capacity to work. It remains in such condition so long as it is not restored back to its working condition by reconditioning the same by effecting necessary repairs thereto. As soon as the machine is restored back to its working condition from the unworkable condition, it will have to be held, if Mr. Pal's contention is sound, that a new asset has been acquired. In our opinion, that is not the position in law and in fact and we are unable to accept Mr. Pal's contention. The mere fact that any asset or machinery had not been used for a long time and had remained in an unworkable condition for a length of time, does not by itself necessarily establish that the machine or the asset was completely lost.
26. The expenditure in question cannot, in our opinion, be said to have resulted in any enduring or permanent benefit for the assessee. The expenditure in question, as already noted, was on renovation of the buildings, in reconditioning the machinery and for removal of the debris. Such expenditure in the normal course of business of the assessee will have to be incurred again and again from time to time, sooner or later. There is nothing to suggest in the facts of the instant case that as a result of the renovation of the buildings, any new or additional amenity or facility, not already in existence was obtained. Repairs and renovation of buildingswill have to be done from time to time, as and when necessary, because of natural decay with passage of time. Reconditioning any machinery in the usual, course of business, normally cannot be said to confer an enduring or a permanent advantage, as with time and use, the process may have to be repeated sooner or later due to wear and tear and natural decay. Removal of accumulated debris can confer no advantage of an enduring or permanent nature. It may be true that unless the necessary expenditure on renovating the buildings, reconditioning the machinery and removal of debris had been incurred, the assessee would not be in a position to work the South Samla Cholliery and the assessee undoubtedly gained an advantage of some durable measure, but that does not necessarily make the advantage or benefit an enduring one to make the expenditure incurred for that purpose a capital one. Any businessman incurs every expenditure with the object of deriving some advantage or benefit and does not want to squander away the money for nothing. In the case of Commissioners of Inland Revenue v. Carron Co., Lord Reid, in the course of his speech in the House of Lords, observed at page 68 :
' The main argument for the Crown was that by obtaining the new charter the company obtained an enduring advantage in the shape of a better administrative structure. Of course they obtained an advantage: companies do not spend money either on capital or income account unless they expect to obtain an advantage. And money spent on income account, for example on durable repairs, may often yield an enduring advantage. In a case of this kind what matters is the nature of the advantage for which the money was spent. This money was spent to remove antiquated restrictions which were preventing profits from being earned. It created no new asset. It did not even open new fields of trading which had previously been closed to the company. Its true purpose was to facilitate trading by enabling the company to engage a more competent manager and to borrow money required to finance the company's traditional trading operations under modern conditions. None of the authorities cited is directly in point, and I think that the most apposite general statement in those authorities is that of Lawrence L.J. in Anglo-Persian Oil Co. Ltd. v. Dale, [1931] 16 T.C. 253, 270, [1932] 1 K.B. 124, 141 (C.A.). It ' merely effected a change in its business methods and internal organisation, leaving its fixed capital untouched '. As the Lord President put in the present case :
' The benefit was essentially of a revenue character because the company became able more easily to finance its day-to-day transactions, and more efficiently to carry on its day-to-day manufacture '.'
27. We have already noticed that by this expenditure, no new asset was created. The expenditure was also not incurred to open new fields oftrading. The expenditure was incurred for the purpose of digging coal from a colliery already in existence owned by the assessee in its business, but not worked for some time, by removing the impediments to the working of the same to facilitate the existing trade of the company. The expenditure in question on labour, purchase of various stores, machinery repairs and Dhowrah repairs, etc., for renovating existing buildings, re-conditioning machinery and removal of debris accumulated in the said colliery for working the said mine, was incurred for carrying on the assessee's existing concern and not for acquisition of any concern and was really in the nature of a change in its business method to enable the assessee to carry on more effectively its day-to-day manufacture, leaving its fixed capital untouched. The said expenditure cannot be considered to be capital expenditure merely on the ground that the amount involved is large. Largeness or smallness of the amount spent cannot determine the nature of the expenditure and does not affect the question. The quantum of expenditure involved cannot alter the nature and character of the expenditure. An expenditure of a capital nature cannot become revenue expenditure by virtue of the fact that the amount spent is not large, and, similarly, a revenue expenditure does not become capital expenditure, merely because the amount involved is considerable. The observations of Lord Reid in the case of Commissioners of Inland Revenue v. Carron Co. may be usefully quoted. The noble Lord observed :
' I turn now to the more difficult question whether this expenditure ought to be charged to income or capital account. The case for charging it to capital might appear to be strengthened by the magnitude of the sums involved, but again I do not think it would be right to take into account the sums paid to the dissident shareholders in deciding what should be done with the cost of obtaining the new charter. If this, taken by itself, is a proper charge against income, it cannot become chargeable to capital because it was first necessary to buy off these shareholders. And if the smaller sum is chargeable against income it is not suggested that the larger sum could be chargeable against capital. '
28. The expenditure in question cannot, in our opinion, be considered to be in the nature of an initial expenditure for setting up the business or an expenditure for development thereof. We have already referred to the kind of expenditure incurred. The business was already there and was being carried on. South Samla Colliery and all the machinery and buildings were already in existence, though any production of coal from this unit had remained suspended for a length of time. There is no question of setting up any new colliery, or of constructing any new building or of installing any new machinery and expenditure for such purposes must havebeen incurred long before. There was, therefore, no question of incurring any initial expenditure for setting up any business, nor was there any question of development thereof.
29. The expenditure in question was incurred for preserving the existing assets of the company and for removing the impediments or obstacles to the carrying on of the assessee's existing concern for the purpose of re-starting the operation of digging coal from one of the existing units, namely, South Samla Colliery. The expenditure in question in the assessee's existing business or one of its existing sources or units of production of coal for the purpose of re-starting the operation of digging coal therefrom, cannot, in our opinion, be considered to be an expenditure for setting up or development of the assessee's business, as contended for by Mr. Pal. The decision of the Supreme Court in the case of Sitalpur Sugar Works Ltd. v. Commissioner of Income-tax, relied on by Mr. Pal, is not of any help in the facts of the present case. In that case the question was whether the expenditure incurred in dismantling and refitting existing plant at a better site is capital expenditure or revenue expenditure and the Supreme Court naturally held such expenditure to be capital expenditure. Sarkar J., who delivered the judgment of the court, observed, at page 162 :
' 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. '
30. The decision of the Supreme Court in the case of Commissioner of Income-tax v. Amalgamated Development Ltd. indicates that any and every expenditure resulting in some kind of development of the business or any of its assets does not necessarily and invariably become capital expenditure. In the case of Commissioner of Income-tax v. Mahalakshmi Textile Mills Ltd., the Supreme Court held that the expenditure incurred on introduction of the casablanca conversion system in the assessee's business of manufacture and sale of cotton yarn, was in the facts and circumstances of the case an allowable deduction. The Supreme Court observed, at page 712:
' The Tribunal had evidence before it from which it could be concluded that by introducing the casablanca conversion system the assessee made current repairs to the machinery and plant. The High Court observed that certain moving parts of the machinery had because of 'wear and tear' to be periodically replaced, and when it was found that the old type of replacement parts were not available in the market, the assessee introduced the casablanca conversion system, but thereby there was merely replacement of certain parts which were a modified version of the older parts.'
31. The observations of Lord Blackburn in the case of United Collieries Ltd. v. Commissioners of Inland Revenue, which we have earlier quoted and on which Mr. Pal places particular reliance, are not of any material assistance in the facts of the present case. The said observations have to be understood in the context of the peculiar facts of that case. It is of interest to note that in the very same case, Lord Morison observed at pages 1254-1255:
'The Special Commissioners have found that the expenditure in question here was in substance and in fact a preliminary expenditure in opening up a new seam of coal, and was an expenditure of capital. I do not see my way to disturb that finding, but I only wish to add that there may quite well be cases in which the cost even of extensive pumping incurred in the course of mining operations may be a revenue charge and properly charged against revenue. The reason why I reach my conclusion is because of the way in which the Commissioners in these findings have dealt with the subject-matter of the case.'
32. The observations of Lord Blackburn relied on by Mr. Pal, in our opinion, do not lay down and are not intended to lay down any general proposition that whenever any expenditure is incurred in putting into working order an asset which for some reason has become unworkable or has not been worked for some time, such expenditure invariably and always becomes capital expenditure. Suppose, a person in his business has three units or factories for production of a particular commodity. For business reasons, say, due to lack of demand in the market of that commodity or for scarcity of raw materials, he does not operate or is unable to operate all the three units or factories and works only two of them, closing the other for the time being. With improvement in market conditions after some time or with availability of raw materials, the person resumes operation of the closed unit and for the purpose of re-starting operation of the unit which had remained closed, the businessman incurs in oiling and cleaning the machine and removing any accumulation of filth and dirt in the unit or factory premises, an expenditure without which it would not be possible to re-start operation of the said unit or factory. Can such expenditure be said to be in the nature of capital expenditure In our opinion, it cannot be, and must be considered to be revenue expenditure.
33. Let us consider another example. Suppose, the labourers in a factory go on strike for some reason or other and the factory has to remain closed due to such strike for a period. Such a situation occurs quite frequently these days. Suppose, after a length of time the disputes are resolved and the strike is called off and the factory goes into production again. Naturally, various expenses have to be incurred for reopening theclosed factory and for working the same after a period during which it remained closed and had ceased to function. It cannot, in our opinion, be considered that all expenses incurred for reopening the factory must be in the nature of capital expenditure. In our view, such expenditure in the course of business, for re-starting operation in an existing unit which might have gone out of operation for any length of time, should normally be considered to be revenue expenditure, if there be nothing in the nature of the expenditure to suggest to the contrary and if the other conditions are satisfied.
34. In the case of General Corporation Ltd. v. Commissioner of Income-tax, a situation had arisen when the assessee-company was obliged to stop its business operation on account of cyclone and the assessee had, thereafter, incurred expenditure for resuming its business operation and the expenditure so incurred was held not to be capital expenditure but revenue expenditure. The facts of the case as recorded in the judgment of Madhavan Nair J., who delivered the judgment of the Special Bench of the Madras High Court, are as follows :
'The facts are these : The assessee is a company incorporated under the Indian Companies Act. The company carried on business in motor accessories at Madras, Bombay, Coimbatore and Ootacamund, and in mica mine at Nellore. In this reference before us we are concerned with a sum of Rs. 5,420 which the company claims it is entitled to deduct for expenses incurred in carrying on the mica business. The mining business was started at Nellore in 1926. It was worked till November, 1927, when the production was stopped on account of cyclone. With a view to resume the production the company did some prospecting work and incurred an expenditure of Rs. 5,420 in 1928-29. This amount was made up of expenses on account of salary, wages, legal expenses, depreciation, etc. It may be mentioned here that production was not resumed by the company. Till 1930-31 the company was assessed to income-tax by the Income-tax Officer of Bombay as it had its principal place of business at Bombay. In that year the principal place of business was changed to Madras and the duty of assessing the company to income-tax for 1930-31 fell to the Income-tax Officer in Madras, In 1928-29 the Bombay Income-tax Officer allowed the sum of Rs. 5,420 being the loss of the mica business at Nellore against the profits of the company's other business. When the assessment for the year 1930-31 was taken up the Madras Income-tax Officer took action under Section 34 of the Income-tax Act and assessed the company for a total income of Rs. 18,932 disallowing the sum of Rs. 5,420 on the ground that the loss was of a capital nature and not loss incurred in the course of business as the company did not do any business in the year of account.'
35. The matter ultimately went to the High Court in a reference and the question referred was : ' Where an assessee carrying on a mica business is obliged to stop it on account of a cyclone but still incurs expenditure during the year of account with the intention of resuming the same if conditions and prospects proved favourable, but the business in fact was never resumed, is the expenditure so incurred allowable as a deduction against the profits and gains of the assessee's other business '
36. It was argued before the court on behalf of the Commissioner 'that the mica mining business originally carried on by the company as one of its businesses came to an end in 1927, that it was not resumed at all, and that in the circumstances the expenses incurred with a view to resume the business must be considered to be loss of a capital nature incurred by the company and not a loss incurred in the course of business as the company had admittedly not done any business in 1928-29 '. The court negatived the contention and held at page 355 :
' In our opinion, this argument cannot be accepted. According to its memorandum one of the objects of the company was to search for, win, work and get mica. When production was stopped by a cyclone, the company started prospecting to find out whether the business can be carried on and incurred the expenses in question with a view to resume production. How can it then be said that the business had stopped It is admitted that the old staff of the company doing the mica business was maintained by it on a reduced scale, the work of prospecting was done by that staff, and that the expenses were incurred in trying to see whether the production can be resumed. It appears to us that the fact that there was some period of inactivity in the carrying on of the business does not really affect the question, nor is the question affected by the consideration that the business was not resumed after the expenses had been incurred.'
37. The finding of the Tribunal in the instant case that the expenditure in question is capital in nature as the colliery was not working in the relevant year cannot be justified and is erroneous in law as the assessee had been carrying on its business and had incurred the expenditure in the course of its business for resuming the operation of digging coal.
38. As expenditure which has to be incurred by an assessee in the course of its trade to enable the assessee to carry on its trading operation should usually be considered to be revenue expenditure when other necessary conditions are satisfied.
39. In the case of Commissioner of Income-tax v. Kirkend Coal Co. the Supreme Court held that the expenditure on stowing operation incurred by the assessee which carried on the business of coal mining, was a revenue expenditure, as stowing was an operation necessary to be carried out in theprocess of the extraction of coal and unless it is carried out extraction was not possible irrespective of the fact whether depillaring had been done or not. The said expenditure on stowing operation was held to be a revenue expenditure, as the operation of stowing was necessary for the purpose of extraction of coal.
40. Judged in a business sense from the view-point of a businessman, the expenditure in question was incurred by the assessee for the purpose of the assessee's concern already in existence, for the purpose of carrying on the same and not for acquiring any concern not in existence. To quote the words of Bowen L.J. in City of London Contract Corporation v. Styles:
' You do not use it 'for the purpose of' your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern.'
41. The expenditure in the acquisition of the concern would be capital expenditure; the expenditure in carrying on the concern would be revenue expenditure.
42. The aim and object of the expenditure were not to acquire any new asset, but to carry on the assessee's existing concern by working one of its existing mines which the assessee had not been able to work for a length of time for reasons beyond its control. The only object of the assessee was to resume operation in one of its existing units for facility of trade and the expenditure in question aimed only at removing the impediments which had cropped up, to enable the assessee to work the said existing unit of production of coal; and the aim and object of the expenditure were not to acquire any new asset and no new asset in fact was acquired as a result of the expenditure in question. The expenditure in question did not bring into existence an asset or advantage for the enduring benefit of the business. The expenditure in question was made not for the purpose of bringing into existence any such asset or advantage, but for running the assessee's business or working it with a view to earn profits by resuming the operation of digging coal from the said South Samla Colliery. It is clearly a part of the assessee's working expenses and is laid out as part of the process of profit earning. The expenditure in question must, therefore, be considered to be revenue expenditure.
43. We, therefore, answer the question in the negative, against the department, in favour of the assessee.
44. The applicant assessee is entitled to the costs of this reference and thesame will be paid to the applicant by the respondent, Commissioner ofIncome-tax.
Sankar Prasad Mitra, J.
45. I agree.