R.N Misra, J.:— This is a reference made under section 256(1) of the Income-tax Act of 1961 (hereinafter referred to as “the Act”) at the instance of the revenue. The following question has been referred for the opinion of the court by the Appellate Tribunal:

“Whether, on the facts and in the circumstances of the case, the amount of Rs. 12,137 donated by the assessee to the Collector, Balasore, for the construction of the primary health centre building at Rupsa was an admissible business expenditure?”

2. Assessee is a rice mill. The year of assessment is 1963–64. Assessee claimed deduction of a sum of Rs. 12,137 as an item of business expenditure and states that this sum had been given for construction of a primary health centre building at Rupsa where the mill was located. The Income-tax Officer disallowed the claim on the ground that it was a donation for the benefit of the local public in general and could not amount to a revenue expenditure of the assessee. Assessee challenged the Income-tax Officer's decision in appeal before the Appellate Assistant Commissioner. The first appellate authority was of the view that the expenditure for the construction of the building of the primary health centre brought to the assessee a benefit of enduring nature, and, therefore, was capital expenditure. Accordingly, rejection of the claim by the Income-tax Officer was sustained.

3. In second appeal, the Tribunal took the view that the concept of “business expenditure” was a wide one and took within its ambit any expenditure remotely related to the business. Accordingly, it upheld the assessee's contention and directed deletion of the claim of expenditure. The Appellate Tribunal found:

“The assessee has donated Rs. 12,137 for the construction of a hospital which is in the vicinity of the mill premises of the assessee. The assessee contended that the amount was donated and being business expenses should have been allowed in full which has been rejected by the revenue as neither direct nor remote nexus has been shown to the business activities. The assessee's contention was that the employees of the assessee could have taken advantage and benefit of the hospital as otherwise they had to go a long distance. It is further submitted before us by the learned counsel that the assessee by virtue of State laws was under an obligation to render assistance or help to the sick employees and, therefore, the contribution to the hospital partook the nature of business expenditure as a direct and proximate link has been established with the business needs of the company. A certificate from the Collector has also been placed before us showing that the contribution made by the assessee was both for the general public and the employees of the mill. We have been told that the original of the certificate has been filed with the Appellate Assistant Commissioner. Since the employees of the mill were entitled to have the benefit of the hospital for medical treatment we consider that the decision relied on by the Appellate Assistant Commissioner in the case of Dewan Sugar & General Mills Pvt. Ltd. v. Commissioner of Income-tax [1970] 77 ITR 572 All. has no relevance to the facts of the present case. The concept of ‘business expenditure’ is wider than has been understood by the Appellate Assistant Commissioner inasmuch as any expenditure even remotely related to the business would be a business expenditure which is required to be incurred for the carrying on of the business. In this view of the matter we delete the addition.”

4. Learned standing counsel for the revenue contends that even if it be accepted that the employees of the assessee's mill would benefit by medical treatment made available by the primary health centre, the expenditure cannot be branded as revenue in character.

5. Section 37(1) of the Act provides:

“Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, ‘Profits and gains of business or profession’.”

6. The expression “capital expenditure” is not defined in the Act and the words “in the nature of capital expenditure” occurring in section 37(1) make the meaning of the expression more elastic in its application to the facts of each case. The Supreme Court in the case of Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax [1955] 27 ITR 34 SC. was examining whether a particular expenditure was “business expenditure” or “capital expenditure”. A Full Bench of the Lahore High Court in the case Benarsidas Jagannath, In re3 laid down the following tests:

“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……

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……

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 justify 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……”.

7. The Supreme Court in its turn in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax stated:

“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. 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. 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. 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. 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.”

8. Three more decisions were cited before us as throwing light on the point. The first is the case of Lakshmiji Sugar Mills Co. P. Ltd. v. Commissioner of Income-tax. The Supreme Court was examining a claim of deduction raised by the assessee—a sugar mill in respect of amounts paid by way of contribution for the construction and development of roads between the various sugarcane producing centres and the sugar factory of the assessee. The roads were property of the Government and even after improvement, title vested in the Government. The court approved the tests laid down by it in Cement Company's case (Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax) and came to hold that the expenditure for repair of the roads was a revenue expenditure.

9. A Bench of the Madras High Court in the case of Commissioner of Income-tax v. T.V Sundaram Iyengar & Sons (P.) Ltd. was examining the tenability of the assessee's claim for deduction of money given for purchase of land for construction of houses under the subsidised industrial housing scheme sponsored by the State Government and came to the conclusion that the expenditure was incurred wholly and exclusively for the purpose of the business of the assessee-company. Reliance was placed on the decision of the Supreme Court in Cement Company's case and the rule in the English tax cases in the case of Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155 HL.

10. The last case cited is one from the Bombay High Court in the case of Commissioner of Income-tax v. Associated Cement Companies Ltd. [1974] 96 ITR 650 Bom. Assessee in this case was a cement factory situated outside the municipal limits of a town. Government decided to include the factory area within the municipal limits. Assessee agreed to provide certain amenities to the town including provision of water supply and Government on its part undertook not to include the properties of the factory within the municipal limit for fifteen years so that the assessee would not have to pay municipal taxes during that period. Assessee spent more than Rs. 2 lakhs in installing pipe lines, etc., which became the property of the municipality. Assessee claimed the sums spent by it as revenue expenses. Assessee's claim was upheld.

11. The principle indicated in these tests certainly support the assessee. As found here by the Tribunal, the primary health centre was the property of the Government. Assessee made a substantial contribution to meet the costs of erection in consideration of the fact that a health centre located near the factory premises would provide treatment to the ailing workmen. Under the State Employees' Insurance Act assessee had obligation to maintain a hospital or meet the expenses on treatment. Taking an overall picture of the matter, the Tribunal recorded the finding that, in the facts of the case, it was business expenditure. We are not inclined to take a different view. Our answer to the question referred, therefore, is:

On the facts and in the circumstances of the case, the amount of Rs. 12,137, donated by the assessee to the Collector, Balasore, for the construction of the primary health centre building at Rupsa is an admissible revenue expenditure.

12. The assessee shall have its costs. Hearing fee is assessed at rupees one hundred.

Panda, J.:— I agree.