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1991 (9) TMI 102

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..... lve Shops measuring 10'.9" x 20'.9" (Plinth area 223 Sq. Ft.) are under construction in the S.L.N. Charities premises facing Vanivilas Institute Road, Bangalore and they are expected to be ready for occupation by the end of June 1978. The management have proposed to lease these shops on rental basis. Tenders are invited from the interested parties in the prescribed form to be obtained from the Charities Office on any working day between 9 a.m. and 1 p.m. The Charities will be at liberty to reject any or every offer by way of tender without assigning any reason. The accepted tenders will be liable for execution of necessary rental deeds with the Charities as per existing rules of the management. The sealed tenders may be addressed to Secretary, S.L.N. Charities, Fort, Bangalore - 560 002 on or before May 20th 1978. " In the tender form, the applicant was required to mention as to how much rent he was willing to offer and also as to how much amount he was willing to pay by way of contribution. The assessee submitted tender for the grant of lease of two shops. The assessee offered rent of Rs. 400 per month per shop and contribution of Rs. 32,000 per shop. The tender of the asses .....

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..... ments over the whole period of the lease along with the rent. " The Madras High Court considered this issue in the case of Ramakrishna Co. v. CIT [1973] 88 ITR 406. In that case, one cinema theatre building had been taken on lease by one K. Viswanathan. The unexpired portion of the lease deed was 10 years and 8 months. The assessee obtained on lease from K. Viswanathan his right, title and interest in the cinema building and had to pay Rs. 1 lakh by way of consideration in addition to payment of monthly rents payable by K. Viswanathan. The assessee claimed deduction for a sum of Rs. 9,375 being the proportion of the total consideration of Rs. 1 lakh, for the year under consideration in addition to the monthly rents as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922, in computing its total income. The High Court held that the amount having been paid by the assessee for the acquisition of a capital asset constituted capital expenditure and the department was justified in denying deduction for it. 6. Attention is also drawn to the following words of Lord Greene M.R., in Henriksen, (Inspector of Taxes) v. Grafton Hotel Ltd. [1942] 10 ITR Suppl. 79 (KB). " .....

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..... enditure on the payment of premium is capital expenditure and a deduction for it cannot be allowed. The payment under consideration, though called by the name contribution, is, in fact, only premium for the acquisition of the tenancy and the department was justified in holding that the expenditure on the payment of premium being capital expenditure cannot be allowed as a deduction. 10. The learned authorised representative of the assessee had relied on the decision of the Bombay High Court in the case of CIT v. Cinceita (P.) Ltd. [1982] 137 ITR 652. In that case, the assessee took on lease for an initial period of 20 years a building on a monthly rent of Rs. 3,500, with an option for a renewal of the lease at a higher rent, to be used as the business premises of the assessee. For the relevant assessment year, the assessee claimed as deduction an expenditure of Rs. 10,700 towards registration fees, stamp duty and solicitors' fees in connection with the drawing up of the lease deed. The question arose whether the expenditure was capital expenditure or revenue expenditure. The High Court was of the view that the expenditure claimed by the assessee being only the expenditure required .....

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..... its looms to their full capacity, and purchase of loom hours by a mill had, therefore, the effect of relaxing the restriction an the operation of loom to the extent of the number of working hours per week transferred to it, so that the transferee mill could work its looms for longer hours than permitted under the working time agreement and increase its profitability. The expenditure incurred by the appellant for the purpose of removing a restriction on the number of working hours for which it could operate its looms with a view to increasing its profits was revenue in nature and allowable as a deduction under section 10(2)(xv). By the purchase of loom hours no new asset was created and there was no addition to or expansion of the profit-making apparatus of the appellant. The acquisition of additional loom hours did not add to the fixed capital of the appellant ; the permanent structure of which the income was the product or fruit remained the same ; it was not enlarged nor did the appellant acquire a source of profit or income when it purchased the loom hours. The expenditure incurred for the purpose of operating the looms for longer working hours was primarily and essentially rel .....

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..... date the interest vested in the assessee. The Supreme Court accepted the contention of the assessee. Relying on this decision of the Supreme Court, it has been sought to be argued on behalf of the assessee in the present case that the tenancy being only for a period of 11 months, it could not be said to constitute an asset and the expenditure in question could not, hence, be regarded as being capital expenditure. 16. The above mentioned case decided by the Supreme Court, on which the assessee has relied, does not establish that the tenancy for a period less than six years would not normally constitute an asset. Under the provisions of the Wealth-tax Act, the definition of the term " asset " specifically excluded interest in property which was for a period less than six years. But for this specific exclusion, it is understood that the interest in property, though to last for a period less than six years, was property. If the Legislature had not looked upon such an interest to be otherwise an asset, there was no need to specifically provide for this exclusion. It may be that the assessee has acquired the tenancy for a short period, but still the tenancy is an asset and the contrib .....

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