1983 (3) TMI 109 - AT - Income Tax

Issues Involved:
1. Deduction of Rs. 82,500 as revenue expenditure.
2. Disallowance of Rs. 27,500 as revenue expenditure.
3. Disallowance of Rs. 8,596 as preliminary expenses.
4. Disallowance of Rs. 5,212 as conveyance expenses.
5. Disallowance of Rs. 6,060 as donation expenses.

Detailed Analysis:

1. Deduction of Rs. 82,500 as Revenue Expenditure:
The primary issue was whether the payment of Rs. 82,500 made by the assessee during the accounting year should be treated as a capital or revenue expenditure. The Income Tax Officer (ITO) considered the payment as a capital expenditure, arguing it was a premium paid to secure a lease for Jai Hind Cinema, thus acquiring a capital asset or an advantage of enduring value. Conversely, the Appellate Assistant Commissioner (AAC) viewed the payment as inextricably linked with the process of earning income, thus considering it a revenue expenditure. The Tribunal, after examining the terms of the lease agreement, concluded that the payment did not secure any asset or advantage of enduring nature but merely facilitated the business. The Tribunal upheld the AAC's view, allowing the deduction of Rs. 82,500 as a revenue expenditure.

2. Disallowance of Rs. 27,500 as Revenue Expenditure:
The assessee also appealed against the disallowance of Rs. 27,500, which was paid before the accounting year. The AAC had disallowed this amount on the grounds that it was not paid during the relevant accounting year. The Tribunal upheld this disallowance, agreeing that since the payment was made before the accounting year, it could not be considered for deduction during the year in issue.

3. Disallowance of Rs. 8,596 as Preliminary Expenses:
The assessee claimed a deduction of Rs. 8,596 as preliminary expenses incurred before the commencement of the accounting year. Both the ITO and AAC disallowed this claim. The Tribunal upheld the AAC's finding, agreeing that the assessee had not made out a case justifying interference with the disallowance.

4. Disallowance of Rs. 5,212 as Conveyance Expenses:
The assessee also appealed against the disallowance of Rs. 5,212 representing conveyance expenses. The AAC had found the disallowance reasonable and correct. The Tribunal agreed with the AAC's finding and declined to interfere with the disallowance.

5. Disallowance of Rs. 6,060 as Donation Expenses:
Lastly, the assessee appealed against the disallowance of Rs. 6,060 from the donation account. The AAC had disallowed this amount, and the Tribunal upheld the AAC's finding, concluding that the assessee had not made out a case for deduction.

Separate Judgment by the Accountant Member:
The Accountant Member disagreed with the Judicial Member's conclusion on the main issue of treating the Rs. 82,500 as revenue expenditure. He argued that the payment was a premium for acquiring the lease, which is typically a capital expenditure. He cited various legal precedents and emphasized that the nature of the payment, not its form, determines its classification. He concluded that the premium paid was for obtaining an enduring advantage and should be treated as a capital expenditure, thus disallowing the deduction of Rs. 82,500.

Third Member Order:
Due to the difference in opinion between the Judicial Member and the Accountant Member, the matter was referred to the Third Member. The Third Member, after considering the arguments and relevant legal principles, sided with the Accountant Member, concluding that the premium paid was a capital expenditure and not deductible as revenue expenditure.

Final Decision:
The Tribunal, in conformity with the majority view, concluded that the payment of Rs. 82,500 was a capital expenditure and not allowable as a revenue deduction. The disallowances of Rs. 27,500, Rs. 8,596, Rs. 5,212, and Rs. 6,060 were upheld. Both the revenue and the assessee's appeals were dismissed.

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