Classification of expenditure
90. Forest expenditure is either "revenue" or "capital." The broad principles to be observed in the distribution over capital and revenue heads of charges in the department are set out below :
E. D. C. 67 and F.A.C. Appendix I.
(i) The question whether any particular expenditure in a commercial undertaking is debitable to "capital" or to "revenue" is determined in the case of a new undertaking by the consideration that all initial outlay on first construction and equipment and all outlay on maintenance thereof, until the undertaking reaches a "productive" stage, are a "capital" charge, and, in the case of an existing undertaking, by consideration that expenditure which improves the earning capacity of the undertaking, equivalent in the case of a forest to the yield capacity is a "capital" charge and that which merely maintains the earning capacity at its previous level is a "revenue" charge.
(ii) In accordance with the principle enunciated above, the following expenditure should be deemed "capital."
Initial outlay, e.g. :
(a) The cost of all operations in connection with the increase of the area under forest growth or the introduction of organized working, e.g. :
(1) Purchase of land for plantations and forest purposes and cash compensation for extinction of forest rights;
(2) Expenditure on forest settlements and demarcation;
(3) Initial expenditure on the creation of new plantations; but not expenditure on their maintenance or on replacing a forest crop, natural or artificial;
(4) Cost of compiling working plans and carrying out regular forest surveys by professional agency.
(b) The cost of first construction and equipment and of first supply of all appliances and appurtenances necessary for working the forests, e.g. :
(1) construction of permanent roads, tram-ways, bridges, houses, canals, timber slides, saw mills, factories, etc.;
(2) equipment of houses, saw mills, factories, etc.;
(3) purchase of live-stock, stores, tools and plant, etc.
(c) The cost of construction of any work by Government under section 35 of the Forest Act (Act XVI of 1927) on forests and lands which are not the property of Government.
(iii) "Revenue" expenditure comprises, besides working expenses incurred on the production of revenue and on the realization thereof, all charges that are necessary for the maintenance of forest (after they have commenced to yield revenue) up to a proper standard of efficiency, i.e. the cost of all operations in connection with the conservation and regeneration of forests, including the replacing of forest crops by artificial means, after harvesting, which may be required from year to year to maintain the forests in a state of normal efficiency. Thus the following expenditure will usually be "revenue" :
(a) The cost of tending operations, e.g. thinnings, improvement fellings, cleaning, creeper-cutting stubbing out kana grass, etc.
(b) The cost of all measures for inducing and aiding natural reproduction, e.g. clearing undergrowth, collecting and burning the debris of fellings, hoeing the soil prior to the seed fall, artificial filling of gaps to supplement natural reproduction, re-opening trenches in order to stimulate the production of root suckers, and so forth.
(c) The cost of protection of forests from fire, from unauthorized grazing and fellings, from insects and fungoid attacks, etc.
(d) The cost of any renewal or replacement of the items mentioned in (ii) (b) above rendered necessary by ordinary wear and tear or depreciation or natural death.
(e) The cost of maintaining all Government forests.
NOTEIn doubtful cases the determination whether a particular form of forest expenditure is of a "revenue" or "capital" nature should be based on the application of the principle enunciated in clause (i) above.