1982 (3) TMI 1 - HC - Income Tax

Summary

Issues Involved:
1. Whether the expenditure incurred by the assessee for demolition and reconstruction of the building was capital or revenue in nature.
2. Whether the expenditure could be considered as advance rent or premium for the lease.
3. Whether the expenditure was laid out for the enduring benefit of the assessee's trade.
4. Whether the expenditure was in lieu of future revenue payments and thus should be considered as revenue expenditure.

Summary:

1. Capital or Revenue Expenditure:
The primary issue was whether the expenditure incurred by the assessee for demolition and reconstruction of the building was capital or revenue in nature. The Tribunal held that it was revenue expenditure, while the Income-tax Officer considered it capital expenditure. The High Court upheld the Tribunal's decision, noting that the expenditure resulted in significant savings in rent, which rendered it revenue in character.

2. Advance Rent or Premium for Lease:
The assessee argued that the expenditure represented advance rent, which was dismissed as untenable. The Department contended that the expenditure amounted to a premium for the lease, which was also rejected. The Court clarified that the construction cost could not be equated to a premium on lease, as the lease terms did not require the demolition and reconstruction for the right to use and occupy the leasehold.

3. Enduring Benefit:
The Department argued that the expenditure was for the enduring benefit of the assessee's trade, thus capital in nature. The Court referred to the principle from Atherton's case and subsequent rulings, emphasizing that enduring benefit is not always the acid test of capital expenditure. The Tribunal focused on the savings in rent charges, which indicated the expenditure was revenue in character.

4. Expenditure in Lieu of Future Revenue Payments:
The Tribunal concluded that the expenditure was in lieu of future revenue payments, as it relieved the assessee from higher rent charges. The Court upheld this view, citing the principle from the Anglo-Persian Oil Company's case, which states that expenditure substituting future revenue payments is also revenue expenditure. The Court noted that the expenditure resulted in significant savings in rent, making it a revenue outgoing.

Conclusion:
The High Court answered the question of law in the affirmative, holding that the expenditure was revenue in nature and deductible in computing the total income of the assessee. The Court also issued a certificate of fitness for appeal to the Supreme Court, recognizing the importance of the principle involved.