Sabyasachi Mukharji, J.:— The assessee is a company carrying on the business of tea-growing. The assessment year is 1964-65, for which the relevant accounting year is the calendar year 1963. The Income-tax Officer found under the head “repairs account” an expenditure of Rs. 26,643. The said expenditure included the cost of fencing to the tune of Rs. 19,748. He, however, found that in the immediately preceding assessment year the assessee had claimed an expenditure in respect of fencing to the tune of Rs. 4,630. After looking into the details of the expenditure, the Income-tax Officer was of the view that new fencing lines were fixed with new pillars, and, therefore, a major portion of the expenditure was capital expenditure. He, therefore, disallowed on estimate a sum of Rs. 12,000. There was an appeal before the Appellate Assistant Commissioner. It was urged before the Appellate Assistant Commissioner that no new fencing were put up during the year under consideration and that the expenditure pertained to the repairs of fencing which had to be done after a couple of years and, therefore, the Income-tax Officer was not justified in treating the sum of Rs. 12,000 as capital expenditure. The Appellate Assistant Commissioner, however, did not accept this contention. He upheld the disallowance made by the Income-tax Officer. The assessee preferred an appeal before the Tribunal. The Tribunal heard the appeal along with two appeals for the assessment years 1962-63 and 1963-64. It was contended on behalf of the assessee that the new pillars purchased by the assessee were made of timber and did not have a long life. It was also urged that the fencing of the tea gardens was absolutely necessary for the purpose of smoothly carrying on the assessee's business of tea-growing and the fencing was there also earlier. But the said fencing was not effective and new pillars of timber had to be purchased to secure the gardens. On behalf of the revenue, it was contended that the expenditure was excessive and the assessee had acquired some capital asset or an advantage of enduring nature by incurring the expenditure. It was, however, urged that incurring of the expenditure had direct nexus with the carrying on of the business by the assessee. The expenditure was for protection of the tea gardens by fencing and as such the expenditure was for the purpose of earning profits or for the purpose of protecting or continuing the day to day business. It was further submitted on behalf of the assessee that unless the said expenditure was incurred, expenses on account of watch and ward staff would have been incurred. The Tribunal reached the conclusion that the disallowance of Rs. 12,000 was not justified and, therefore, directed its deletion. In the premises, under section 256(1) of, the Income-tax Act, 1961, the following question has been referred to this court:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure of Rs. 12,000 which had been disallowed by the Income-tax Officer and the Appellate Assistant Commissioner out of repairs account was allowable as revenue expenditure?”
2. The principles for determining whether a particular expenditure is revenue expenditure or capital expenditure are well-settled, though sometimes the application of such principles to a particular case presents difficulty. It has been held that the final conclusion reached by the Tribunal is a mixed question of law and fact. In this case we have to consider the nature of the repairs done and the purpose of the expenditure for which the same was incurred. The Tribunal has noted in its order that the expenditure had a direct nexus with the day to day business of the assessee. The assessee's business was to carry on the business of tea growing and the tea leaves of the garden could not be protected and the business could not be carried on unless there were proper fencing. Therefore, incurring of the expenditure was in connection with the carrying on of the business by the assessee. It is true that by incurring this expenditure the assessee had acquired certain advantage to the property and perhaps it might be argued, as was argued on behalf of the revenue in this case, that it was for protection of the property. But what was the primary object and intention in the facts and circumstances of the case and in the background of the assessee's business and on the basis of the past record for incurring the expenditure? If the predominant and the main purpose of incurring the expenditure was carrying on of the business, the incidental advantage of that expenditure, the property being secured more and thereby the assessee gaining advantage which is of some endurance, in our opinion, cannot affect its revenue character. Having regard, therefore, to the facts and circumstances of the case and having regard to the principles applicable in this case, we are of the opinion that the Tribunal came to the correct conclusion.
3. In the premises, the question referred to this court is answered in the affirmative and in favour of the assessee.
4. Each party will pay and bear its own costs.
Pyne, J.:— I agree.
6. Question answered in the affirmative.
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