1987 (1) TMI 40 - HC - Income Tax

Summary

Issues Involved:
1. Whether the legal expenses and other expenses incurred for obtaining leases of office premises at Calcutta and Delhi were allowable in computing the total income.

Summary:

Issue 1: Deductibility of Legal and Other Expenses for Lease Acquisition

In the assessment year 1975-76, Mather & Platt (India) Ltd., a UK-incorporated company, obtained leases for office premises in New Delhi and Calcutta. The assessee incurred various expenses, including legal fees and registration fees, totaling Rs. 15,082, which it claimed as business expenditure.

The Inspecting Assistant Commissioner disallowed the deduction, holding that the leases provided an enduring benefit, thus classifying the expenses as capital expenditure. The Commissioner (Appeals) upheld this view, agreeing that the expenditure resulted in an enduring benefit.

The assessee appealed to the Tribunal, citing the Supreme Court decision in India Cements Ltd. v. CIT [1966] 60 ITR 52. However, the Tribunal found the facts of that case distinguishable and applied the decision in Gobind Sugar Mills Ltd. v. CIT [1979] 117 ITR 747, dismissing the assessee's appeal.

Upon further appeal, the High Court considered various precedents, including Atherton v. British Insulated & Helsby Cables Ltd. [1925] 10 TC 155 (HL) and Assam Bengal Cement Co. Ltd v. CIT [1955] 27 ITR 34 (SC), which established that expenditure resulting in an enduring benefit is capital in nature. The court also reviewed the decision in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC), which noted that not all enduring benefits are capital expenditures, but the nature of the advantage in a commercial sense is crucial.

The High Court concluded that the assessee incurred the expenditure to secure leases for 15 and 20 years, resulting in an enduring benefit. The expenditure was made once and for all to bring into existence an asset or advantage for the enduring benefit of its business. The decision in Gobind Sugar Mills Ltd. [1979] 117 ITR 747 supported the view that such expenditure is capital in nature.

Therefore, the High Court affirmed the Tribunal's decision, holding that the legal and other expenses incurred for obtaining the leases were not allowable in computing the total income. The question was answered in the affirmative and in favor of the Revenue, with no order as to costs.