Law:

Section:

Section 37(1) of the income-tax act, 1961-Capital or revenue expenditure-Assessee-company contributed sums under govern-ment scheme to raise yield of sugarcane, which, inter alia, included boring of wells and construction of godowns-Whether said sums deductible as revenue expenditure-Held, yes Facts The assessee was a private limited company producing sugar. The Government of U.P. envisaged a scheme to raise the average yield of sugarcane per acre. The finance required for the scheme was to be shared by the Central Government, State Government, the sugarcane growers and the sugar factories. In pursuance of the aforesaid scheme, the assessee contributed Rs. 24,000, Rs. 37,000 and Rs. 24,000, respectively, for the financial years 1963-64 to 1965-66 to the Cane Development Council which was responsible for carrying out the said programme of development. The assessee's claim for the allowability of the said sums as revenue expenditure was rejected by the ITO, but the AAC regarded the expenditure as incurred on grounds of commercial expediency. The Tribunal, however, reversed the AAC's order. On reference: Held The contributions made by the assessee were with a view to improve cultivation of sugarcane which would in turn ensure better yield of sugarcane. These objects, though not directly, at least indirectly facilitated the carrying of the business by the assessee. It could not be contended that some of the items of expenditure contemplated by the scheme were of lasting advantage to the assessee because, on closer scrutiny of the facts of the case, it would be seen that this was not so. The specific items of expenditure in respect of manures, persian wheels and insecticides could not constitute capital expenditure in any sense of the term. The only doubtful items were in regard to the expenditure envisaged on the boring of wells and construction of godowns and by way of subsidy on culverts, but there was nothing to show that the expenditure resulted in the creation of any capital asset for the assessee. The wells and culverts had to be constructed on the lands belonging to the canegrowers and there was no material to show that these became the property of the…

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