Chandurkar, J.:— At the instance of the assessee the following two questions have been referred to us under s. 256(1) of the I.T Act, 1961:
“(1) Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 7,000 incurred by the appellant in preparing the playground for the workers and members of the staff was a revenue expense permissible under sec. 37(1) of the Income-tax Act, 1961?
2. Whether, on the facts and in the circumstances of the case, the moiety of the book profits were includible in the capital employed in the industrial undertaking in accordance with rule 19(5) of the Income-tax Rules, 1962?”
2. The second question stands concluded by a decision of this court in the case of the assessee for the earlier assessment year 1964-55 which was the subject-matter of Income-tax Reference No. 122 of 1969 (Teksons P. Ltd. v. CIT (No. 1)) decided on 28th July, 1978 (since reported in [1979] 120 ITR 738 (Bom)). An identical question referred for the assessment year 1964-65 has been answered after a detailed discussion of facts and law in favour of the assessee.
3. It is not disputed even on behalf of the revenue that the second question will have to be identically answered. The second question is, therefore, answered in the affirmative and in favour of the assessee.
4. So far as the first question is concerned, the brief facts are that the assessee had incurred an expenditure of Rs. 7,000 for levelling land to be used as a playground by the workers and members of the staff of the asses-see-company. This amount was held to be disallowable as revenue exdenditure and the ITO held that being an initial expenditure, it should be treated as capital expenditure. The AAC upheld the order of the ITO and he held that the assessee-company had acquired an asset in the form of a playground. The Tribunal also declined to interfere with the orders of the ITO and the AAC. The Tribunal took the view that the expenditure being in the nature of capital expenditure, it cannot be allowed though ultimately the benefit of the expenditure may go for the welfare of the staff of the company.
5. Arguing on behalf of the assessee Mr. N.V Mehta has contended that all that was done was that the land had been levelled and, therefore, no new asset was acquired by the company. According to him, there was no construction made and there is really no advantage to the company which could be said to have resulted except that the staff of the company was able to make use of the land. Having regard to the facts of the present case, we are inclined to take the view that the expenditure of the amount of Rs. 7,000 cannot be treated as capital expenditure. There is no evidence to show that any new construction in the form of a stadium or pavilion has been put up. All that is disclosed on the record is that the land has merely been levelled. If land has been levelled and could be used as a playground like any other open land, it is difficult to hold that this has resulted in any enduring benefit to the assessee-company. By mere levelling of land for being used by the employees of the company, no capital asset comes into existence nor is there any evidence to show that this has resulted in appreciation of the value of that land. It is, therefore, difficult for us to hold that the expenditure was of a capital nature. It should have been allowed as revenue expenditure incurred by the assessee as being incidental to the activities of the assessee-company. In this view of the matter, question No. 1 must be answered in the affirmative.
6. Accordingly, question No. 1 is answered in the affirmative and in favour of the assessee. Question No. 2 is answered in the affirmative and in favour of the assessee. However, there will be no order as to costs.
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