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Issues involved: Determination of deductibility of commission paid for renting office premises as revenue or capital expenditure.
Summary: The High Court of Delhi addressed the issue of deductibility of commission paid for renting office premises as revenue or capital expenditure for the assessment year 1970-71. The assessee claimed a deduction of Rs.23,735 as commission for renting office premises, out of which Rs.2,625 was paid for the old premises and Rs.21,110 for the new premises. The Income-tax Officer disallowed the claim as capital expenditure, but the Appellate Assistant Commissioner allowed it as revenue expenditure. The Tribunal held that the amount paid for the old premises was allowable, but the payment for the new premises was capital in nature, relying on legal precedents regarding salami or premium payments. The Revenue contended that the commission was capital in nature, akin to premium or salami. The court referred to legal principles established in previous cases regarding salami or premium payments, emphasizing the non-recurring nature of such payments and their classification as capital receipts. It was noted that salami is a payment made by a tenant to the landlord for the right to possess the property, which is considered a capital receipt. The court highlighted that the distinction between rent and premium under the Transfer of Property Act, 1882, is crucial in determining the nature of such payments. Ultimately, the court concluded that the payment of Rs.21,110 for the new office premises was of a capital nature, based on the factual position presented. Therefore, the court ruled in favor of the Revenue and against the assessee, affirming that the commission payment was not deductible as revenue expenditure under the Income-tax Act, 1961.
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