1987 (6) TMI 39 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 2,235 (or Rs. 2,084) paid by the assessee was attributable to revenue expenditure.

Summary:

Issue: Whether the sum of Rs. 2,235 (or Rs. 2,084) paid by the assessee was attributable to revenue expenditure.

The assessee, M/s. Project Automobiles, Bhilai, claimed that the instalments of premium paid during the assessment years 1970-71, 1971-72, 1972-73, and 1974-75 should be treated as revenue expenditure. The Income-tax Officer repelled this contention, considering the payments as capital expenditure. The Appellate Assistant Commissioner, however, allowed the claim based on a previous Tribunal decision for the assessment years 1964-65 to 1969-70. The Tribunal dismissed the Department's appeals, leading to the current references to the High Court.

The Department's counsel argued that the premium of Rs. 62,500 paid for the permanent lease was a capital expenditure, distinguishing it from the annual ground rent of Rs. 3,125. The assessee's counsel contended that the premium was essentially advance rent and thus revenue expenditure.

The court referred to several precedents to determine whether the expenditure was capital or revenue. Key cases included:
- Indore Municipal Corporation v. CIT: Expenditure on metal roads considered capital.
- Taj Mahal Hotel v. CIT: Expenditure on building improvements considered capital.
- New Precision (India) Private Ltd. v. CIT: Payment for technical services considered capital.
- Board of Agricultural Income-tax v. Sindhurani Chaudhurani: Salami payments considered capital.
- Pingle Industries Ltd. v. CIT: Lease payments for quarry rights considered capital.
- Durga Das Khanna v. CIT: Lump sum payments for lease rights considered capital.
- M. A. Jabbar v. CIT: Lease payments for sand removal considered revenue.

The court concluded that the premium paid by the assessee for the lease was a capital expenditure, as it secured a right of enduring nature over the plot. The facility of paying the premium in instalments did not alter its capital nature. The clause for resumption of possession by the lessor did not affect this conclusion.

Judgment: The Tribunal erred in treating the premium as revenue expenditure. The question was answered in the negative, in favor of the Department and against the assessee. No order as to costs.