1994 (2) TMI 26 - HC - Income Tax

Capital Expenditure, Capital Or Revenue Expenditure, Expenditure Incurred, Immovable Property, Let Out, Movable Property, Stamp Duty

Summary

Issues:
Whether stamp, registration, and other expenses related to a lease deed of land amount to capital expenditure?

Analysis:
The case involved a dispute regarding the nature of expenses incurred by an assessee for executing a lease deed of property. The Income-tax Appellate Tribunal had disallowed the expenses, considering them as capital in nature. The assessee had acquired another property for its business and leased out the original property for 98 years. The Tribunal concluded that the expenses were capital in nature as they facilitated the acquisition of a capital asset and provided enduring advantages to the assessee.

The High Court analyzed the facts and opined that the expenses were revenue in nature. It highlighted that the assessee, as the lessor, did not acquire any new asset or source of income by executing the lease deed. The expenditure was incurred for earning rent and was part of the profit-earning process. The Court distinguished between capital and revenue expenditure, emphasizing that the expenses were related to conducting business or earning income from the property already owned by the assessee.

The Court rejected the Tribunal's reasoning that proper registration of the deed conferred enduring advantages, stating that the lessor did not acquire permanent rights through the lease deed. It cited precedents, including decisions by the Bombay and Calcutta High Courts, to support its conclusion that expenses related to leasing out property are revenue in nature. The Court held that the expenses were not for acquiring a capital asset but for generating income from the property, thus classifying them as revenue expenditure.

Based on the analysis, the Court ruled in favor of the assessee, declaring that the stamp, registration, and other expenses of the lease deed were revenue expenditure. The judgment disposed of the reference, deciding the issue in favor of the assessee and against the Revenue, with no order as to costs.