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TMI Blog1989 (4) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... to 17 and residential flats bearing Nos. 6-1-1081/1 to 4 and an open area admeasuring about 2,500 sq. yards firstly for 11 months under the sub-lease dated 3-8-1971. Under sub-lease dated 23-9-1972 the sub-lease was renewed for a further period of 15 years on a stipulation to pay monthly rent of Rs. 3,000. Under the terms of the sub-lease agreement last cited, the assessee covenanted to put up constructions up to a minimum of Rs. 3,25,000. We had the occasion to consider the head-lease as well as the sub-leases and came to the following conclusion in our orders dated 6-2-1984 relating to the same assessee for assessment years 1974-75, 1975-76 and 1977-78 in ITA Nos. 1633, 1634 and 1635/Gtd/82. Our finding is as follows : --- " So para 2 of the preamble when read coupled with condition No. 5 of the head lease would clearly disclose that as soon as any new construction would be put up on the demised premises it would partake the character of the premises already let out by the waqf to M/s B.R. Associates. That means even during the subsistence of the lease period the waqf would become the owner of the superstructures put up either by it or by its sub-lessees. In those circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lease deed itself for the duration of the lease and therefore the appellant is the owner of the building and as such has created an asset of an enduring advantage even though the enjoyment of which is co-terminus with the lease. Ultimately she dismissed the appeal. 2. The assessee is now in second appeal before this Tribunal. We may wish to point out that the two findings of the learned CIT(A) given in para 6.4 are quite contrary to each other. In the first finding she states that the assessee gets title over the said buildings (new constructions) after the duration of the lease period. In the second finding, she states that the assessee is the owner of the building even though the enjoyment of which is co-terminus with the lease. Firstly we are unable to understand what is the definite finding of the CIT(A) with regard to the ownership of the new construction which the assessee is obliged to put up on the leased premises as per the sub-lease dated 23-9-1972. The copy of the sub-lease was furnished at pages 43 to 47 of the paper compilation filed before us. The head lease dated 7-4-1966 is furnished at pages 25 to 33. Condition No.5 of the head lease executed between the Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 4 of the sub-lease it had undertaken to construct or make further additions to the existing buildings up to a minimum of value of Rs. 3,25,000. In the relevant accounting year it had made an addition of Rs. 1,57,925. As we have already held in our earlier orders that as soon as the new constructions were put up on the demised premises, they automatically partake the character of demised premises, the ownership of that buildings vests with the wakf, the original owner of the premises and even during the subsistence of the sub-lease the ownership does not vest with the assessee but only with the wakf. Under these circumstances the question is whether the amount of Rs. 1,57,925 should be considered as capital expenditure on which ground the revenue disallowed the same as a deduction or as a revenue expenditure as contended by the assessee. The learned counsel for the assessee Sri B. Satyanarayana Murthy, brought to our attention the Orissa High Court decision in CIT v. J. N. Bhowmick [1978] 111 ITR 747 and the Andhra Pradesh High Court Decision in CIT v. Singareni Collieries Co. Ltd. [1980] 121 ITR 466. In all fairness the learned Counsel brought to our notice the decision of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the sea beach at Puri. The hotel premises were taken on lease by the assessee. Under the covenant of lease dated 13-7-1967 the assessee undertook to erect within 18 months from the date of the lease, masonry structures on the two sides of the vacant plot of land in front of existing building known as Ashu Bhavan as per plan to be approved by the lessors and the building was to be of very good type and the expenditure was estimated at Rs. 60,000 in the minimum. This masonry structure undertaken to be built by the assessee was to vest in the lessor on the expiry of the term of the lease (i.e. 12 years 11 months) and it was further expressly stipulated that failure to raise the construction within the time indicated would entail forfeiture of the lease. During the year, assessee claimed deduction of a sum of Rs. 38,397 said to have been spent on the aforesaid head and the same was pressed to be accepted as revenue expenditure. The I.T.O. treated it as capital expenditure and rejected the claim for deduction. The A.A.C. confirmed the order of the I.T.O. He also declined to accept the deduction. The Tribunal while confirming the finding of the Lower Authorities treated capital exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o hold that the expenditure was incurred for keeping up the business and, therefore, was revenue expenditure." In Singareni Collieries Co, Ltd.'s case the facts before the A.P. High Court were the following :-- "Under the provisions of Coal Mines Labour Fund Act, 1967, the Coal Mines Labour Housing Board was constituted for construction of low cost houses for persons employed in coal mines. In pursuance of a scheme prepared by the said Board, the assessee-collieries entered into an agreement with the said Board for construction of quarters for its labourers. As per the specifications laid down by the Board, the Board was to pay a maximum amount of Rs. 3,100 per house to the assessee-company. According to the scheme, the buildings shall be durable for an estimated life of 15 years and buildings and site shall belong to the Board. The agreement with the Board shall be with 15 years during which period a nominal amount of Re. 1 per month per tenement shall be paid by the company to the Board. In pursuance of the said scheme, the assessee-company constructed quarters in the assessment years 1964-65 and 1965-66 by incurring an expenditure of Rs. 45,20,723 and Rs. 42,25,420. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount according to the terms of the lease. If it fails to keep up the terms of the lease there is every likelihood of forfeiture of the lease. In such a case the whole income earning apparatus would not be available. The only benefit which the assessee would contemplate, is, that it is entitled to let out the additional accommodation created by the new constructions can also be let out and thus the main object of its carrying on of its business more profitably can be achieved. This argument of Sri. B. Satyanarayana Murthy, learned counsel for the assessee is to be accepted. In our opinion the case law cited by the D.R. is clearly distinguishable and therefore the ratios of those of the case laws cited by the learned D.R. in our opinion, do not apply to the facts on hand. Firstly let us take up in Liberty Cinema's case. The Calcutta High Court in that case laid down that in a case where the deduction from business profits are to be claimed under sub-sec.(2) of sec. 10 of the I.T.Act, the onus of proving that such allowances are permissible is upon the assessee and the High Court in such cases must base its answer on the facts as found by the Tribunal. We respectfully follow the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e head note of the decision at p. 63 as follows :-- " Held further, that the amount of Rs. 15,275 was not allowable as expenditure for current repairs or as revenue expenditure under sec. 10(2)(v) or 10(2)(xv) of the Act. The expenditure could not be allowed u/s. 10(2)(v) as the amount was not spent in current repairs to the theatre but on improvements of great magnitude carried out for giving an enduring advantage to the assessee to keep pace with or outstrip in the competition with a new theatre which had recently sprung up, and the expenditure did not fall within the scope of sec. 10(2)(v) of the Act. It was not allowable u/s. 10(2)(xv) as substantial improvements were made to the building and the land appurtenant thereto, with the sole object of getting an enduring benefit for the business and the expenditure must be deemed to be in the nature of a capital expenditure." As can be seen from the above that the finding of fact given on which the High Court confirmed the finding that it was capital expenditure, was, that the amount was not spent in current repairs to the theatre but on improvement of great magnitude carried out for giving an enduring advantage to the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to create the income earning apparatus itself, viz., exhibiting of cinema films. That makes a vital distinction and therefore, the Bombay High Court's decision does not apply to the facts of the case. 7. Now let us come to the Delhi High Court decision in Hotel Diplomat's case. In the Delhi case the firm comprising of four partners were no other than the co-owners of the building which the firm had taken on lease for an indefinite period on 25-11-1962. Under the lease terms any structural alterations or additions were to become the property of the co-owners. By a supplemental agreement the firm was to give six months' notice before determining the lease. The firm let out the building to an Embassy. Under the terms of the rent deed dated 19-2-1963 initially it was for a period of two years. It was extended for another period of two years under the terms of rent deed dated 1-10-1964. Pursuant to the terms of the rent deed with the Embassy, the assessee incurred expenditure during the accounting period relevant to the assessment year 1963-64, out of which the sum of Rs. 3,361 represented expenses for construction of additional bathrooms. The question was whether this amount spent fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this point. 10. Thus ground No. 6 of the appeals is answered in favour of the assessee. Now let us take up ground No. 7. The assessee complains that though it had denied its liability to pay interest either under sec. 139(8) or under sec. 217 the learned Commissioner did not make even a mention of it besides not dealing with the same ground before her. The I.T.O. imposed interest of Rs. 32,568 under sec. 139(8) and an amount of Rs. 16,800 under sec. 217. The truth of the contention was not denied by the learned Departmental Representative. However, what he contends is that this is not a reassessment but it represents the first and original assessment itself. It is no doubt true, argues the learned D.R. that sec. 148 notice to be issued to the assessee called upon him file a return. He argues that every assessment made u/s. 148 need not be considered as a reassessment. Even an original assessment can be validly made u/s. 148 for the reason that sec. 147(a) applies when there was failure on the part of the assessee to file a return and under sec. 148(1) the Legislature contemplated that before making assessment a notice containing all or any other requirements which may be included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 12,209. The total interest payable on the borrowed funds by the assessee was Rs. 1,56,982. It is the case of the I.T.O. that out of the borrowed funds an amount of Rs. 89,227 was diverted for non-business purposes. The assessee claimed that no direct link between the borrowed funds and advance for non-business purposes was established. In fact it is the contention of Sri B. Satyanarayana Murthy that no amount of borrowed fund was diverted for non-business purposes. Further he filed the balance sheet as on 31-3-1981 and also on 31-3-1982. An amount of Rs. 52,329.18 was appearing as a liability due to municipal corporation. He says that it was only a provision made and the amount was never paid to the municipality. Ordinarily before a provision is made in the accounts the amount of a provision would be debited to the profit and loss account and credited to the provision account. The balance as on 31-3-1981 and 31-3-1982 provided at pages 49 and 51 respectively disclosed the amount of Rs. 52,329.18 as a liability. That means to our understanding the amount was never paid but remained in the provision account. The amount of debit in the profit and loss account to the extent of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o K.P. Ranga Rao. The I.T.O added the two amounts. The learned CIT (A) was unable to give credence to the arguments advanced on behalf of the assessee that when the amounts received from the tenants at the time of entering into the premises they were to be treated as income ex-hypothesis the amounts paid to the tenants for vacating the premises should also be allowed as a deduction. The learned CIT (A) going into the logic which prompted the Tribunal to hold that salami received was "revenue expenditure" held the Tribunal took the said view for the reason that the assessee could not be treated as the owner of the properties and therefore, the income cannot be treated as capital receipt since it was the appellants intention obviously to collect the salami from every new lessee and it was the intention of the appellant to treat the rented premises as trading assets and to derive income therefrom. However, the learned CIT (A) held that as far as the payment to a tenant for the purpose of making him vacate the premises is concerned, this cannot be treated as revenue expenditure. There is no logic as to why that is so. It is simply her ipse dixit. In our opinion the ipse dixit of learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some time. In confusion most of the bills were either misplaced or not located. Therefore the original bill for payment of Rs. 9,250 was not produced for verification. They have since obtained an attested copy from the telephone department. The non-submission of the original bill before the Lower Authorities is not due to wilful default. Since the document filed along with the petition to admit additional evidence is a public document whose authenticity cannot be doubted and which was issued in regular course of transactions by a public office and since it is crucial document on the basis of which this issue can be decided, the delay is hereby condoned and the is admitted into evidence. The cash bill issued by the Telephone Department dated 2-5-1981 contains the following items :-- Provision of (5 + 20 PMBX) board Rs. Annual rent for 5 + 20 PMBX board 3,000-00 Installation charges " 700-00 Annual rent for 15 (1) @ 200 3,000-00 Installation charges for 15 s @ 150 2,250-00 Conversion of 3 direct lines into Jn. lines @ 100 300-00 ----------------- (Rs. Nine thousand two hundred fifty only) 9,250-00 ----------------- Therefore, it is clear from above document o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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