Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1967-68 - Assessee required water for its factory for industrial production and residential consumption - It entered into agreement with MIDC for water supply connection - Agreement was to remain in force for a maximum period of not more than nine months - MIDC laid pipeline to assessee's factory and residential estate which always belonged to MIDC-Tribunal held expenditure incurred in laying pipeline amounted to premium for obtaining water supply and not contribution to cost of laying pipeline - It was further held that assessee had not acquired any benefit of enduring nature under said agreement as it was merely a temporary agreement - Whether, in aforesaid circumstances, Tribunal rightly held that premium paid by assessee to MIDC for temporary water supply connection was expenditure of revenue nature - Held, yes FACTS The assessee-company manufactured textile machinery, an agreement was arrived at between the assessee-company and the Maharashtra Industrial Development Corporation ('MIDC' for short) for temporary water supply connection, since the assessee was in urgent need of water for their factory for industrial production and residential consumption in the factory estate. M.I.D.C. had agreed to provide water supply connection on a temporary basis till a final agreement was entered into. The said agreement was to remain in force for a maximum period of not more than nine months and thereafter the parties had to enter into a final agreement which was acceptable to both the parties. Under the said agreement, M.I.D.C. agreed to supply the booked demand of 1 lac gallons of water to the assessee per day. The assessee agreed to pay the estimated water charges from time to time as may be demanded by M.I.D.C. i.e., at the rate of Rs. 2.75 per 1,000 gallons. Prior to the said agreement, M.I.D.C. had already laid the pipeline and had incurred all the expenditure. The pipeline belonged to M.I.D.C. at all times and the assessee had to pay Rs. 4.50 lakhs as capital contribution charges for laying the pipeline. It was the case of the assessee-company that it had…

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