JUDGMENT Ajit K. Sengupta, J. 1. THIS reference under Section 256(1) of the Income-tax Act, 1961, relates to the assessment year 1975-76. The assessee as well as the Commissioner, aggrieved by the order of the Tribunal, sought for reference before this court. 2. SIX questions at the instance of the assessee and three questions at the instance of the Revenue have been referred to this court. The following questions have been referred at the instance of the assessee in R. A. No. 479/(Cal) of 1986 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the benefit of Rs. 15,64,284 received by the assessee-company under the export incentive schemes is taxable under the Income-tax Act, 1961? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the cash subsidy on controlled cloth amounting to Rs. 49,81,892 was liable to tax under the Income-tax Act, 1961 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the sum of Rs. 60,213 representing additional expenditure incurred in payment of instalments of foreign loan liability due to exchange fluctuation is capital expenditure ? 4. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the tiling fees paid to the Registrar of Companies for increasing the authorised share capital of the company amounting to Rs. 37,500 is a capital expenditure ? 5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the fees paid to the Controller of Capital Issues for seeking permission for issue of bonus shares amounting to Rs. 1,500 is capital expenditure ? 6. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that donation made to Vishwa Mangal Trust by the assessee-company will not qualify for deduction under Section 80G of the Income-tax Act?" 3. AT the instance of the Revenue, the following questions have been referred : "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in allowing the assessee's claim for deduction of Rs. AT the instance of the Revenue, the following questions have been referred : "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in allowing the assessee's claim for deduction of Rs. 89,129 by holding that the sum spent on maintenance of transit bungalows was expenditure incurred in connection with the assessee's business which would not come within the purview of Section 37(3) as guest house expenses? 2. Whether, on the facts and in the circumstances of the case, the Income tax Appellate Tribunal was justified in allowing Rs. 53,867 and Rs. 28,895 being the miscellaneous expenses and law charges incurred for its proposed cement factory project as business expenditure even when the project had not come into operation ? 3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the addition of Rs. 68,849 being the unclaimed wages written back by the assessee in its profit and loss account could not be brought to tax by the Income-tax Officer under Section 41(1) of the Income-tax Act, 1961?" 4. IT is not in dispute that most of the questions referred at the instance of the assessee are concluded by decisions of this court or of the Supreme Court as the case may be. We, therefore, do not propose to highlight the facts relating to such questions. The first and second questions at the instance of the assessee are concluded by the decision of this court in Kesoram Industries and Cotton Mills Ltd. v. CIT [1978] 115 ITR 143. Following the said decision, we answer the first and second questions in the affirmative and in favour of the Revenue. 5. THE third and fourth questions at the instance of the assessee are concluded by the decision of this court in the case of Union Carbide India Ltd. v. CIT [1987] 165 ITR 678. Following the said decision, we answer the third and fourth questions in the affirmative and in favour of the Revenue. 6. THE fifth question is concluded by an unreported decision of this court in Income-tax Reference No. 248 of 1986, in Woodcraft Products Ltd. v. CIT, where the judgment was delivered on June 27, 1990. Following the said decision, we answer the fifth question in the negative and in favour of the assessee. 6. THE fifth question is concluded by an unreported decision of this court in Income-tax Reference No. 248 of 1986, in Woodcraft Products Ltd. v. CIT, where the judgment was delivered on June 27, 1990. Following the said decision, we answer the fifth question in the negative and in favour of the assessee. The sixth question is also concluded by the decision of this court in the case of CIT v. Upper Ganges Sugar Mills Ltd. [1985] 154 ITR 308. Following the said decision, we answer the sixth question in the affirmative and in favour of the Revenue. 7. THE facts relating to the first question at the instance of the Revenue are as follows : The assessee incurred a total expenditure of Rs. 1,60,193 which was inclusive of Rs. 89,129 being the expenditure incurred on maintenance of transit bungalows located at various places where the assessee's rayon, spun pipes and cement units were located. It was also inclusive of another sum of Rs. 71,064 representing guest house expenses incurred in the assessee's cement unit. The assessee claimed deduction of both the sums under Section 37 of the Act which was disallowed by the Income-tax Officer. The Commissioner of Income-tax (Appeals) upheld the disallowances by following his orders for the assessment years 1973-74 and 1974-75. On further appeal by the assessee, the Tribunal found that the additions made on this account for the assessment years 1973-74 and 1974-75 had been deleted by the Tribunal by observing that the transit bungalows maintained by the assessee were mainly meant for the employees and the customers of the assessee who visited the different units in connection with their business. The Tribunal, in their order for the assessment year 1973-74, observed that the persons visiting the factories of the assessee located at various places were compelled to stay in those bungalows and, consequently, the expenses incurred were in connection with the assessee's business. Since the facts for the assessment year 1975-76 were similar to those found by the Tribunal for the assessment year 1973-74, the Tribunal deleted the Income-tax Officer's addition of Rs. 89,129 being the transit bungalow expenses incurred by the assessee at the various places where the assessee's units were located. 8. Since the facts for the assessment year 1975-76 were similar to those found by the Tribunal for the assessment year 1973-74, the Tribunal deleted the Income-tax Officer's addition of Rs. 89,129 being the transit bungalow expenses incurred by the assessee at the various places where the assessee's units were located. 8. THIS question came up for consideration before a Division Bench of this court in Income-tax Reference No. 332 of 1979 (Kesoram Industries and Cotton Mills Ltd. v. CIT [1991] 191ITR 518), where the judgment was delivered on June 28, 1989. In our view, the transit bungalows are in the nature of guest houses. All the material facts pertaining to the nature of the bungalows and the nature of the expenditure incurred on these bungalows have not been brought on record. We, therefore, decline to answer the first question referred at the instance of the Revenue. The Tribunal shall dispose of this issue afresh in the light of the aforesaid decision after allowing the parties to lead additional evidence, if necessary. The facts leading to the second question at the instance of the Revenue are that the assessee had a cement unit in Basant Nagar, Andhra Pradesh. During the previous year, it incurred miscellaneous expenditure of Rs. 53,872 and also incurred a further sum of Rs. 28,892 on account of legal charges in connection with the setting up of a proposed new cement factory in Rajasthan. The Income-tax Officer disallowed both the sums aggregating to Rs. 82,767 on the ground that the expenses did not pertain to the existing business of the assessee and, consequently, represented capital expenditure. The Commissioner of Income-tax (Appeals), by following the Gujarat High Court decision in the case of CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715, held that both the amounts were to be allowed as revenue expenditure. On further appeal by the Revenue, the Tribunal sustained the order of the Commissioner of Income-tax (Appeals) by observing that the assessee did not set up a new cement factory in Rajasthan during the relevant previous year. The expenses were incurred for exploring the possibility of starting a new cement project in addition to the assessee's existing cement unit in Andhra Pradesh. The Tribunal held that the ratio of the Gujarat High Court decision in CIT v. Alembic Glass Industries ltd. The expenses were incurred for exploring the possibility of starting a new cement project in addition to the assessee's existing cement unit in Andhra Pradesh. The Tribunal held that the ratio of the Gujarat High Court decision in CIT v. Alembic Glass Industries ltd. [1976] 103 ITR 715, relied upon by the Commissioner of Income-tax (Appeals), was applicable to the present case. 9. BEFORE us, the contentions raised before the Tribunal have been reiterated. The contention of learned counsel for the assessee is that the assessee carried on business in manufacture of cement, rayon, cellophane paper, cast iron spun pipes, etc., and incurred certain expenditure in connection with the setting up of a proposed cement unit at Rajasthan. The assessee's existing cement unit during the year under appeal was located at Basant Nagar (Andhra Pradesh). The expenses so incurred were of revenue nature as, according to him, it is the case of an existing business having the project of a new unit in the same line of business of cement. On the other hand, the contention of learned counsel for the Revenue is that an expenditure may be allowed as business expenditure if the assessee satisfies that the same was incurred in respect of a business which was carried on in the relevant previous year. It is contended that if the expenditure affected the very structure of the profit-earning machinery of the assessee, it has to be treated as capital expenditure. 10. WE have considered the rival contentions. There is no dispute that the assessee did not set up a new cement factory in Rajasthan during the relevant year. The expenses as aforesaid were incurred for exploring the possibility of starting a new cement project, in addition to the assessee's existing cement unit at Rajasthan. Our attention has been drawn to the decision of the Gujarat High Court in the case of Alembic Glass Industries Ltd. [1976] 103 ITR 715. In that case, the assessee was a company manufacturing glass at Baroda. During the assessment years 1965-66 and 1966-67, the company incurred expenditures of Rs. 7,53,084 and Rs. 77,00,000, respectively, for establishing a new glass manufacturing unit at Bangalore. The said unit did not go into production during the two assessment years in question, the Income-tax Officer disallowed the payment of interest of Rs. 50,000 and Rs. During the assessment years 1965-66 and 1966-67, the company incurred expenditures of Rs. 7,53,084 and Rs. 77,00,000, respectively, for establishing a new glass manufacturing unit at Bangalore. The said unit did not go into production during the two assessment years in question, the Income-tax Officer disallowed the payment of interest of Rs. 50,000 and Rs. 2,00,000, respectively, in the two years on borrowings made by the assessee in establishing its new unit at Bangalore. The High Court held that the business organisation of the assessee both in respect of its administration and funds pertaining to the existing and the new units were common. It was held that the new unit was nothing but an expansion of the assessee's existing business. The High Court, by following the decisions of the Bombay High Court in the case of Calico Dyeing and Printing Works v. CIT [1958] 34 ITR 265 and of the Supreme Court in India Cements Ltd. [1966] 60 ITR 52 and Challapalli Sugars Ltd. [1975] 98 ITR 167, held that the interest paid on borrowed capital which was invested in the assessee's new unit was allowable as a business expenditure. 11. OUR attention has also been drawn to the decisions of several other High Courts where a similar view has been taken. In CIT v. Oswal Spinning and Weaving Mills Ltd., the assessee who was carrying on the business of spinning and weaving woollen yarn, incurred registration charges for obtaining a loan for the purpose of starting a new venture, viz., manufacture of vanaspati ghee, and claimed the amount as business expenditure. The Income-tax Officer disallowed the claim on the ground that the new unit had not been set up during the relevant accounting period but the Tribunal allowed the claim. On a reference, the Punjab and Haryana High Court held that the loan was not an asset or advantage of an enduring nature and the objects with which it was raised were wholly irrelevant. Even if the unit of manufacturing vanaspati ghee had not been set up, the registration expenses for obtaining the loan would be a business expenditure and not of a capital nature. Moreover, the assessee was already a running concern and the endeavour was to set up a new vanaspati ghee unit. Therefore, the registration expenses were allowable as business expenditure. 12. Moreover, the assessee was already a running concern and the endeavour was to set up a new vanaspati ghee unit. Therefore, the registration expenses were allowable as business expenditure. 12. IN CIT v. Shah Theatres (P.) Ltd., the assessee who carried on the business of exhibition of motion pictures started construction of a cinema theatre. The assessee claimed deduction of a certain amount in respect of travelling expenses incurred in connection with the construction of the cinema building. The Income-tax Officer disallowed the claim, but the appellate authorities were of the view that the expenditure was incurred in connection with the extension of the existing business and not for setting up a new business. On a reference, following the decision of the Gujarat High Court in Alembic Glass industries Ltd. [1976] 103 ITR 715, the Rajasthan High Court held that the assessee was entitled to the deduction of interest on borrowed capital and travelling expenses. The Madhya Pradesh High Court in Kanhiram Ramgopal v. CIT [1988] 170 ITR 41, was concerned with a case where the assessee, who carried on the business of a rice and dal mill, wanted to expand its business by starting a factory to utilise, the waste products of the rice and dal mill for manufacturing straw boards and, for that purpose, took a loan from a financial corporation. There, the Madhya Pradesh High Court held that the setting up of the straw-board factory was only an expansion of the existing business of the assessee and it was not a case of starting an altogether new business. Therefore, the assessee was entitled to deduction of interest paid under Section 36(1)(iii). 13. THE Karnataka High Court in CIT v. Hindusthan Machine Tools (No. 2) [1989] 175 ITR 216, held that where the new units were only a continuation of the existing business of the assessee, expenditure incurred by the assessee in connection with its new divisions was deductible as business expenditure. 14. THE principles are well-settled. It cannot be disputed that if the expenses are incurred in connection with the setting up of a hew business, such expenses will be on capital account. 14. THE principles are well-settled. It cannot be disputed that if the expenses are incurred in connection with the setting up of a hew business, such expenses will be on capital account. But whore the setting up does not amount to starting of a new business but expansion or extension of the business already being carried on by the assessee, expenses in connection with such expansion or extension of the business must be held to be deductible as revenue expenses. One has to consider the purposes of the expenditure and its object and effect. The finding of the Tribunal in this case is that there was an expansion or extension of the existing business of the assessee. The assessee is a manufacturer of cement. In addition to its factory in Andhra Pradesh, it proposed to start another cement factory in Rajasthan. There is one business. Although the factory at Rajasthan was not set up in the previous year relevant to the assessment year, this fact, in our view, is not a relevant factor in determining whether the deduction is allowable or not. The expenses in this case are miscellaneous expenses and legal charges for the proposed cement factory project. This expenditure is not related to the setting up of a new factory, it pertains to exploring the feasibility of expanding or extending the existing business by setting up a new factory in the same line of business. The assessee, during the course of its business, may incur expenditure for obtaining a project report or legal opinion regarding the viability of such project. This cannot, in our view, be considered as capital expenditure as, in that case, any legal expenses incurred by an assessee for taking any opinion on the desirability or feasibility of expansion of the business will not be allowable as deduction. Such expenditure is unmistakably connected with the running of the business. Our attention has been drawn to a decision of this court in CIT v. Ashoka Marketing Ltd. [1990] 181 ITR 493. In that case, one of the questions was whether the expenditure incurred by the assessee for legal expenses pertaining to transfer of its registered office from Calcutta to New Delhi was an allowable expenditure. There, a Division Bench of this court, after considering several decisions, in particular the decision of the Patna High Court in CIT v. Jamshedpur Engineering and Machine Manufacturing Co. There, a Division Bench of this court, after considering several decisions, in particular the decision of the Patna High Court in CIT v. Jamshedpur Engineering and Machine Manufacturing Co. Ltd. [1986] 157 ITR 730, where the Patna High Court held that the legal expenses for shifting of the registered office should be treated as part and parcel of the shifting expenses and as such not allowable as revenue expenditure, observed that the legal opinion has nothing to do with the expenditure incurred for actual shifting of the head office. The expenditure is in connection with the carrying on of the business of the assessee. If the predominant purpose or intention in incurring the expenditure is intimately connected with the carrying on of the business, the incidental advantage of that expenditure cannot affect its revenue character and such expenditure should be allowed as revenue expenditure. In our view, the principles laid down in the aforesaid decision will equally apply to the facts of this case. In the instant case, the miscellaneous expenses and law charges were incurred for the proposed cement factory project which are inextricably connected with the carrying on of the business of the assessee. 15. FOR the reasons aforesaid, we answer the second question referred at the instance of the Revenue in the affirmative and in favour of the assessee. 16. THE facts relating to the third question are that the Income-tax Officer, on scrutiny of the profit and loss account, found that unclaimed wages of Rs. 68,849 had been written back by the assessee as the same were no longer required to be paid to the employees. The Income-tax Officer brought to tax the aforesaid sum by invoking the provisions of Section 41(1) of the Act. The Commissioner of Income-tax (Appeals), by following the Tribunal's order in the assessee's case for the assessment years 1965-66 to 1970-71, deleted the addition. The Tribunal maintained the order of the Commissioner of Income-tax (Appeals) by following this court's decision in the case of CIT v. Sugauli Sugar Works P. Ltd. [1983] 140 ITR 286. At the hearing, Dr. Pal contended that although the unclaimed wages had been written back, there was no remission or cessation of liability. It is his contention that the question is now concluded by a decision of this court in Sugauli Sugar Works P. Ltd. [1983] 140 ITR 286. At the hearing, Dr. Pal contended that although the unclaimed wages had been written back, there was no remission or cessation of liability. It is his contention that the question is now concluded by a decision of this court in Sugauli Sugar Works P. Ltd. [1983] 140 ITR 286. He has submitted that a subsequent decision of this court in the case of CIT v. Agarpara Co. Ltd. [1986] 158 ITR 78, is distinguishable as, in that case, the bonus was not claimed, which, after the statutory period, could not be recovered. But that is not the case with unclaimed wages. 17. SINCE the facts are not very apparent from the statement of the case, we directed Dr. Pal to give us the particulars regarding the amount of Rs. 68,849 stated to have been written back in the accounts. Such particulars have been furnished which, by consent of the parties, have been kept as part of the records. From the said statement submitted to the court, the following facts would appear in respect of the said sum of Rs. 68,849 stated to be the unclaimed wages written back by the assessee in the profit and loss account : -------------------------------------------------------------------------------- Accounting year 1971-72 Rs. P. Unpaid wages, bonus and casual leave Balance as on April 1, 1974 69,800.28 Add : Unpaid during the year (remaining unpaid at the time of fortnightly payment) - -------------------------------------------------------------------------------- Total 69,800.28 Less : Paid during the accounting year 1974-75 1,597.47 -------------------------------------------------------------------------------- Balance as at March 31, 1975 68,202.81 -------------------------------------------------------------------------------- Unpaid figure as above for the year ended March 31, 1972 68,202.81 Add : Other miscellaneous items relating to workers 646.19 -------------------------------------------------------------------------------- The amount forfeited during the year ended March 31, 1975 68,849.00 -------------------------------------------------------------------------------- 18. IT is evident that the sum of Rs. 68,849 included not only wages but also bonus and leave wages. IT was forfeited by the assessee during the relevant previous year. "Forfeiture", according to the Webster's 9th New Collegiate Dictionary, means the act of forfeiting ; the loss of property or money because of a breach of a legal obligation ; something (as money or property) that is forfeited ; penalty. "Forfeiture" has been defined in Black's Law Dictionary (Sixth Edition), inter alia, as follows : "A deprivation or destruction of a right in consequence of the non-performance of some obligation or condition. "Forfeiture" has been defined in Black's Law Dictionary (Sixth Edition), inter alia, as follows : "A deprivation or destruction of a right in consequence of the non-performance of some obligation or condition. Loss of some right or property as a penalty for some legal act. Loss of property or money because of breach of legal obligation (e.g., default in payment)." In our judgment, where an assessee treats a given amount as his own income in his profit and loss account and had also mentioned that the said amount has become his own income as a result of forfeiting the same itself, then the assessing authority would be entitled to treat the amount as the income of the assessee. It is not the case of the assessee in this case that although it credited the amount to its profit and loss account, it was not entitled to do so or it was not entitled to forfeit. The onus was upon the assessee to establish that in law it was not entitled to treat the said amount as part of its income or that it was not entitled to forfeit the same and, therefore, its liability did not cease. Whether the liability of the assessee has been fully discharged is within the special knowledge of the assessee. He has to prove that in fact the liability subsists. When the assessee itself comes to the conclusion that the amount in question would not be claimed by the concerned persons and, thereafter, it proceeds to forfeit such amount and does not take such amount to a reserve account but writes it back in the profit and loss account, the reasonable inference that will follow from these facts and circumstances and the conduct of the assessee is that the amount which was provided for was in fact not necessary and it was an excess provision. No longer was there any liability. It is always possible that a creditor, if he so chooses, may agree to accept a smaller amount in full discharge of the whole amount due to him. An employee, casual or regular, who is entitled to wages or salary, will not allow his claim to remain unsatisfied. If the employer does not pay, he can move the authorities under the Payment of Wages Act. An employee, casual or regular, who is entitled to wages or salary, will not allow his claim to remain unsatisfied. If the employer does not pay, he can move the authorities under the Payment of Wages Act. In his own interest, he will not permit the employer to withhold the wages, if it is due to him. When an assessee has obtained a benefit of deduction of a trading liability, it is for the assessee to establish whether such trading liability has been fully discharged or not. This court has laid down in CIT v. Agarpara Co. Ltd. [1986] 158 ITR 78, that if there be any excess over the requirement of the assessee in respect of liability claimed and allowed, such liability must be deemed to have ceased. It has also been laid down that it may be inferred from the surrounding circumstances that there has been a cessation or remission of the liability of the assessee. It has also been laid down that if unclaimed bonus being a portion of the bonus allowed as deduction in computing the income of the assessee is carried forward from year to year and thereafter written back in the account and no tax is levied thereon, the assessee would be getting a benefit to which it was not entitled. 19. IN our view, considering the conduct of the assessee in this case in forfeiting the amount coupled with the long passage of time, it can be inferred that those who might have any claim against the assessee in respect of unclaimed wages have abandoned such claim. The smallness of the amount involved in individual cases would furnish a reasonable basis for holding that such creditors or employees were not interested in realising such small amount of dues and, in fact, the amount already paid, although smaller than the amount due, was accepted by them in full discharge of the whole amount. Where the conduct and surrounding circumstances demonstrate that the amount has been remitted or forgone or the sum has ceased to be claimable against the assessee, it would be a clear case of remission or cessation of the liability of the assessee. Where the conduct and surrounding circumstances demonstrate that the amount has been remitted or forgone or the sum has ceased to be claimable against the assessee, it would be a clear case of remission or cessation of the liability of the assessee. Forfeiture of the amount, long passage of time, writing back the amount in the profit and loss account, smallness of the amount, the nature of unpaid amount, in the absence of any demand from the creditors or employees against the assessee and the statute of limitation or the statute governing the payment of wages barring the initiation of the proceedings against the employer, all would demonstrate that there has been a remission or cessation of the liability to the extent the assessee has written it back in its profit and loss account after forfeiture. 20. THIS problem can be viewed from another angle. Under the Payment of Wages Act, 1936, every employer has to maintain records and registers giving particulars of persons employed by him, the work performed by them, the wages paid to them, the deductions made from their wages and the receipts given by them. Such registers and records are required to be preserved for a period of three years after the date of the last entry made therein. The said Act also provides the time of payment of wages, which is normally the 7th or 10th day after the last date of the wage period in respect of which the wages are payable. If there be any delay in making such payment, the employee may present an application before the appropriate authority within 12 months from the date on which the payment of wages was due to be made. It is, therefore, evident that no employee whose wages have not been paid, can recover the unpaid wages after 12 months or after three years as no records of non-payment will be available. Accordingly, such employees who have not collected their wages, nor initiated any proceedings, shall be deemed to have abandoned their wages. To prevent the employer from dealing with unpaid accumulations, the West Bengal Labour Welfare Fund Act, 1974, was enacted which came into force in September, 1976. All such unpaid accumulations have to be paid to the West Bengal Labour Welfare Board constituted under the said Act. As a matter of fact, says Dr. To prevent the employer from dealing with unpaid accumulations, the West Bengal Labour Welfare Fund Act, 1974, was enacted which came into force in September, 1976. All such unpaid accumulations have to be paid to the West Bengal Labour Welfare Board constituted under the said Act. As a matter of fact, says Dr. Pal, the unpaid wages are being deposited with the Welfare Commissioner, West Bengal, and since August, 1976, the liability, if any, of the employer in respect of unpaid accumulations will stand discharged upon transfer of the amount to the Board. This question does not arise for consideration this year. As indicated earlier, in this case, accumulations of unpaid wages, bonus and casual leave pay prior to April 1, 1974, were forfeited on March 31, 1975. To the extent the amount has been forfeited by the assessee, the same will be assessable under Section 41(1). For the reasons aforesaid, we answer the third question at the instance of Revenue in the negative and in favour of the Revenue.