1985 (6) TMI 58 - AT - Income Tax

Deductions, Capital Or Revenue Expenditure, Return Of Income, Advance Tax, Interest Payable By Assessee

Summary

Issues:
1. Disallowance of lease money deduction by the Commissioner (Appeals) for the assessment year 1980-81.

Analysis:
The appeal before the Appellate Tribunal ITAT Chandigarh involved the disallowance of a lease money deduction by the Commissioner (Appeals) for the assessment year 1980-81. The dispute arose from the lease agreement between the assessee-company and six lessors for certain lands at Ferozepur Road. The lease was intended for a period of 99 years but initially agreed upon for five years. The monthly rent was fixed at Rs. 1,000, payable by the 15th of every month. The assessee failed to pay rent until 1979, leading to a compromise decree in favor of the lessors. The assessee claimed a deduction of Rs. 1,26,415 for the assessment year 1980-81, arguing that the claim crystallized in that accounting period. However, the ITO disallowed the claim, considering it capital expenditure for acquiring new assets. The Commissioner (Appeals) allowed a deduction of Rs. 12,000 but disallowed the balance of Rs. 1,14,415, stating that only the rent pertaining to the assessment year would be allowable.

The Appellate Tribunal considered the arguments presented by both parties. The tribunal noted that there was no evidence of possession of the leased lands being given to the assessee-company or the commencement of work as per the lease agreement. The tribunal agreed with the department's representative that the compromise decree was collusive and not binding on the revenue. It was observed that the lease rent until the mentioned period in the agreement would be of a capital nature as it was for acquiring capital assets. The tribunal declined to interfere with the partial claim allowed by the Commissioner (Appeals) but upheld the decision to disallow the remaining amount of Rs. 1,14,415. The tribunal confirmed the order of the Commissioner (Appeals) in this regard.

In conclusion, the Appellate Tribunal upheld the decision to disallow the lease money deduction for the assessment year 1980-81, considering it capital expenditure for acquiring capital assets based on the terms of the lease agreement and lack of evidence regarding possession or commencement of work on the leased lands. The tribunal also deemed the compromise decree as collusive and not binding on the revenue, leading to the rejection of the claim for the remaining amount of Rs. 1,14,415.