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Issues Involved:
1. Whether the premium of Rs. 5 lakhs paid by the assessee for obtaining a lease was capital expenditure. 2. Whether the expenditure of Rs. 30,274 incurred in connection with the lease was capital or revenue expenditure. Summary: Issue 1: Premium of Rs. 5 lakhs as Capital Expenditure The assessee, a company engaged in the manufacture and sale of tiles and potteries, took on lease certain lands for a period of 10 years, paying Rs. 5 lakhs as premium (salami). The Income-tax Officer, Appellate Assistant Commissioner, and Tribunal held that the sum was capital expenditure, as the lease created an interest in the land and an enduring advantage for the assessee. The court upheld this view, stating that the lease conferred a lasting benefit to the assessee, thus qualifying as capital expenditure. The court referenced several precedents, including R. B. Seth Moolchand v. CIT [1972] 86 ITR 647 and Regent Oil Co. Ltd. v. Strick [1969] 73 ITR 301, emphasizing that premiums paid for leases are generally regarded as capital outlay. The court also noted that the lease provided the assessee with exclusive possession and the right to sublease, further indicating a transfer of interest in the land. Consequently, the payment of Rs. 5 lakhs was deemed capital expenditure. Issue 2: Expenditure of Rs. 30,274 as Revenue Expenditure The assessee also incurred Rs. 30,274 towards stamp charges, registration fees, and legal expenses related to the lease. The court differentiated this expenditure from the premium, aligning with the decision in CIT v. Cinceita Private Ltd. [1982] 137 ITR 652 (Bom), which allowed such incidental expenses as revenue expenditure. The court preferred this reasoning over the contrary view in Gobind Sugar Mills Ltd. v. CIT [1979] 117 ITR 747 (Cal), concluding that the nature of the expenditure, being related to the execution of the lease document, should be treated as revenue expenditure. Thus, the amount of Rs. 30,274 was held to be deductible. Conclusion: The court answered the referred question by holding that the premium amount of Rs. 5 lakhs was capital expenditure, while the expenditure of Rs. 30,274 was revenue expenditure. The Revenue was awarded costs, with counsel's fee set at Rs. 500.
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