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TMI Blog1993 (6) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue claimed that the acquisition of tenancy rights in a benefit of an enduring nature and that the expenditure was of a capital nature. The finding was confirmed by the Appellate Assistant Commissioner on appeal. Another question raised by the assessee is with regard to an expenditure of Rs. 80,000 incurred by the assessee in making payment to the Textile Commissioner for its failure to export the aforesaid cloth in terms of the bond executed by the assessee. This amount was added back as c being in the nature of payment of interest. On appeal, the Appellate Assistant Commissioner deleted the said addition. The next item of dispute is pertains the expenses incurred by the assessee in the sum of Rs. 2,676 being the expenses incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised at the Revenue's instance, viz., whether, in the facts and circumstances of the case, the payment of Rs. 80,000 paid by the assessee to the Textile Commissioner would be allowable as a business deduction. To our mind, this question does not require any lengthy debate inasmuch as the same is covered by a number of decisions on the point. On this point, we have a decision of this court in the case of CIT v. Tarun Commercial Mills Co. Ltd. [1977] 107 ITR 172. This decision clearly lays down the principle that the sum to be paid in default of fulfilling the export obligation, no doubt described as a penalty, in the ultimate analysis, it is the substance of the transaction between the parties which had to be considered for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view has been taken by the Calcutta High Court in the case of Chloride India Ltd. v. CIT [1981] 130 ITR 61. In this decision, it has been held that, on the facts of the case, the amount was paid for acquiring right to possession which right was a capital of enduring nature and as such the amount of payment made was to be treated as capital expenditure. This court in the case of Rajabali Nazarali and Sons v. CIT [1987] 163 ITR 7 has considered in detail and reiterated the above principle. This decision holds that a lease creates an interest in immovable property and transfer of leasehold rights which are protected by the provisions of rent restriction statutes, is nothing but a transfer of a capital asset. The price paid to acquire such leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the permanent structure of the company and are not in any way connected with the working capital of the company which is utilised to carry on the day to day operations of the business. It would not be correct to say that no benefit whatsoever is derived by the assessee-company when its profits and/or reserves are converted into paid-up shares. Obviously, the augmentation of the paid-up capital by issuance of bonus shares would increase the creditworthiness of the assessee-company. Thus, when expenses are incurred in connection with the issue of bonus shares, such expenses are incurred by the company for its permanent structure and are directly connected with the acquisition of capital and an advantage of an enduring nature. Such ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure is an integral part of the cost of acquisition of a capital asset and not an integral part of the profit-earning process, such expenditure should be treated as a capital expenditure and not a revenue expenditure. Thus, after a detailed discussion, this court held that the payment of the bank guarantee commission to the bank and the expenditure incurred for obtaining the letter of credit were necessary items of expenditure to bring into existence certain capital assets and to put them, in working condition. These items of expenditure were incurred as an integral part of the cost price of the machinery and formed part of the cost of acquisition of the capital assets. This expenditure must thus be regarded as a capital expenditure. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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