1991 (9) TMI 103 - AT - Income Tax

Summary

Issues Involved:
1. Whether the expenditure in question is of capital nature or revenue nature.
2. Whether the deduction can be allowed in the computation of the taxable income of the assessee, given that the shops were utilized by the partnership firm and not by the assessee.

Issue-Wise Detailed Analysis:

1. Nature of Expenditure:
The primary issue in this appeal is whether the expenditure of Rs. 64,000 paid by the assessee to S.L.N. Charities for obtaining the tenancy of certain shops is of capital nature or revenue nature. The Tribunal concluded that the payment was in the nature of a "premium" for obtaining the lease of the shops, thus constituting capital expenditure. This conclusion is supported by several judicial precedents:

- Kanga and Palkhiwala's Law and Practice of Income-tax: It is well established that a premium paid by the lessee for the grant or renewal of a lease is capital expenditure, regardless of whether it is paid in a lump sum or in installments.

- Ramakrishna & Co. vs. CIT (1973) 88 ITR 406 (Mad): The Madras High Court held that the amount paid by the assessee for acquiring a capital asset (a cinema theatre building) constituted capital expenditure and was not deductible.

- Henriksen vs. Grafton Hotel Ltd. (1942) 24 Tax cases 453: Lord Greene M.R. emphasized that a payment of this character is akin to the payment of a premium on the grant of a lease, which is not deductible.

- Mac Taggart vs. B.E. Strump (1925) 10 Tax cases 17 (C.Ss): The payment for securing the renewal of a lease was deemed capital expenditure and not deductible.

- CIT vs. Project Automobiles (1983) 37 CTR (Bom) 189: The Bombay High Court ruled that the premium paid for getting the lease of land represented capital expenditure and was not deductible.

The Tribunal also considered the assessee's reliance on several cases but found them distinguishable. For instance:

- CIT vs. Cinceita (P) Ltd. (1982) 137 ITR 652 (Bom): The expenditure in this case was for drawing up a proper and effective lease deed without any element of premium, thus it was revenue in nature. However, this case did not support the assessee's claim for deductibility of premium payments.

- Empire Jute Co. Ltd. vs. CIT (1980) 124 ITR 1 (SC): The Supreme Court held that expenditure incurred for removing a restriction on operating looms was revenue in nature. However, the Tribunal distinguished this case, noting that the assessee in the present case acquired a new asset (tenancy right), making the expenditure capital in nature.

2. Deduction in Computation of Taxable Income:
The second issue pertains to whether the deduction can be allowed in the computation of the taxable income of the assessee, given that the shops were utilized by the partnership firm and not by the assessee. The Tribunal did not delve deeply into this issue, as it had already concluded that the expenditure was capital in nature and thus not deductible. However, it was noted that the assessee's contention was that the shops should be considered utilized by the assessee for carrying on business in partnership.

Conclusion:
The Tribunal upheld the Department's decision, concluding that the expenditure of Rs. 64,000 was capital in nature and not deductible. Consequently, the appeal of the assessee was dismissed.