2016 (5) TMI 1271 - HC - Income Tax

Allowability as revenue expenditure - payment made by the appellant to the landlord for his consent to the reconstruction of the building - whether was a revenue expenditure to be allowed as a deduction on proportionate basis over a period of 11 years? - Held that - Revenue, did not dispute that the payment was made by the assessee in consideration of the landlord agreeing to signify his consent to the reconstruction of the building which had been demolished by fire. The expenditure was made so that the assessee was able to carry on its business. Following the view expressed in the case of Bikaner Gypsums Ltd. vs- Commissioner of Income Tax 1990 (10) TMI 2 - SUPREME Court , we are inclined to hold that this was a revenue expenditure. The assessee, though has claimed it on a deferred basis, the claim should be allowed as prayed for. - Decided in favour of assessee.

Summary

Issues Involved:
Interpretation of settlement and joint working arrangement for revenue expenditure deduction.

Analysis:
The judgment challenged was passed by the Income Tax Appellate Tribunal concerning the deduction of a payment made by the assessee to the landlord. The main issue revolved around whether this payment of ?67,50,000 was a revenue expenditure to be allowed as a deduction over a period of 11 years. The settlement between the parties involved the payment for reconstructing the tenanted premises after a fire incident.

The assessee, a tenant, faced challenges in obtaining permission to restore the tenanted premises after a fire. The landlord's consent was crucial for the restoration, leading to legal proceedings up to the Supreme Court. Eventually, a settlement was reached where the assessee agreed to pay ?67,50,000 to a third party, Instalment Supply Ltd., for the landlord's consent to reconstruct the premises. The terms of settlement clearly outlined the purpose of the payment and the conditions for granting consent.

The Tribunal misunderstood the nature of the payment, misinterpreting it as an agreement for sale between the lessor and lessee. However, the payment was made to facilitate the reconstruction of the premises and enable the assessee to continue its business operations. Citing a relevant case law, the court emphasized that such expenditures, made to remove obstacles and disabilities hindering business operations, qualify as revenue expenditures and should be allowed as deductions.

In line with the legal precedent and considering the purpose of the payment, the court concluded that the payment of ?67,50,000 was indeed a revenue expenditure. Despite the assessee's claim for a deferred deduction, the court ruled in favor of allowing the deduction as requested. Consequently, the appeal was allowed in favor of the assessee, answering the question posed in the affirmative regarding the nature of the expenditure and its deductibility over an extended period.