9911796707
|
Home
Issues:
Whether the payment of Rs. 10,000 to Madras Publishing House by the assessee was an allowable deduction under Section 10 of the Income-tax Act. Analysis: The case involved a reference made by the Appellate Tribunal, Bombay Bench, regarding the deductibility of a payment of Rs. 10,000 by the assessee, a public joint stock company engaged in the cinema exhibition business, to Madras Publishing House. The payment was made as an advance for a proposed cinema lease in Madras, which was never built due to the financial instability of the Madras Publishing House. The Income-tax Officer and the Appellate Assistant Commissioner initially disallowed the deduction, considering it as capital expenditure. However, the Appellate Tribunal concluded that it was a business expenditure, remanding the case for further consideration. The key question was whether the payment constituted a capital expenditure or an allowable deduction under Section 10 of the Income-tax Act. Dr. Gupta, representing the Income-tax authorities, argued that the payment was akin to a salami for a lease and thus should be treated as capital expenditure. However, the court noted that the payment was an advance rent under the lease agreement that was supposed to materialize. The court examined the nature of the payment based on the correspondence between the parties and concluded that it was not a premium but an advance rent payment to facilitate the construction of the cinema. The court highlighted that similar payments made by the assessee were treated as ordinary business transactions, indicating that the payment in question was also a part of their business operations. The court emphasized that if the payment was an advance rent made to assist in the construction of the cinema, it would fall under Section 10(2)(xv) of the Income-tax Act as an allowable deduction. Considering the nature of the payment and the context of the business dealings, the court held that the payment of Rs. 10,000 was indeed an allowable deduction in computing the assessee's income. Therefore, the court answered the reference question in the affirmative, ruling in favor of the assessee and awarding them the costs of the proceedings. Chatterjee J. concurred with the judgment, and the reference was answered in the affirmative, affirming the deductibility of the payment to Madras Publishing House.
|
