1987 (2) TMI 125 - AT - Income Tax

Summary

Issues Involved:
1. Classification of expenditure as capital or revenue.
2. Applicability and interpretation of lease agreement clauses.
3. Jurisdiction of the Tribunal to entertain new grounds not raised before lower authorities.
4. Reimbursement of repair expenses under lease agreement.

Detailed Analysis:

1. Classification of expenditure as capital or revenue:

The assessee, a registered firm, claimed Rs. 1,58,206 towards repairs and maintenance of a leased rice mill. The Income-tax Officer (ITO) disallowed Rs. 24,000, treating it as capital expenditure. The Appellate Assistant Commissioner (AAC) allowed the entire amount, stating that the expenditure was for repairs and should not be segregated as capital expenditure. The AAC emphasized that there is no provision in the Income-tax Act allowing only a fraction of such expenses and deferring the rest for future years. The AAC concluded that the expenditure was necessary for running the mill and should be considered revenue in nature.

2. Applicability and interpretation of lease agreement clauses:

The lease agreement stipulated that repair expenses exceeding Rs. 200 should be borne by the lessors. The assessee argued that this clause was not adhered to and was essentially a dead letter. An affidavit was filed by both lessors and lessees stating that the clause was ill-drafted and not intended to be acted upon. The Tribunal, however, held that the recitals in the registered lease deed could not be ignored merely based on an affidavit. The Tribunal emphasized the importance of the lease deed as evidence of the agreed terms at the time of the lease.

3. Jurisdiction of the Tribunal to entertain new grounds not raised before lower authorities:

The assessee raised a preliminary objection, arguing that the Tribunal should not entertain the ground of disallowing the entire expenditure of Rs. 1,58,206 as it was not considered by the lower authorities. The Tribunal upheld this objection, stating that it has no jurisdiction to adjudicate on a question not agitated or claimed before the lower authorities. The Tribunal cited legal precedents to support this view, emphasizing that it can only consider the disallowance of Rs. 24,000, which was the subject matter of the appeal.

4. Reimbursement of repair expenses under lease agreement:

The Tribunal noted that the lease agreement required the lessors to bear repair expenses exceeding Rs. 200. Since the assessee incurred the expenses, they were entitled to reimbursement from the lessors. Therefore, the same expenditure could not be allowed as revenue expenditure in the hands of the assessee. The Tribunal concluded that the disallowed amount of Rs. 24,000 should be added to the total income of the assessee for the assessment year 1982-83.

Conclusion:

The Tribunal set aside the order of the Appellate Assistant Commissioner and held that Rs. 24,000 should be disallowed in the hands of the assessee and added to the total income for the assessment year 1982-83. The appeal was allowed, emphasizing the importance of adhering to the terms of the lease agreement and the jurisdictional limits of the Tribunal.