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TMI Blog2004 (12) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... e of a company and during the course of assessment proceedings it was observed by the Assessing Officer that the assessee has entered into an agreement with Maharashtra Industrial Development Corporation (in short MIDC) on 2-8-1996 for granting lease of plot of land at TTC Industrial Area, Navi Mumbai on payment of premium of Rs. 27 lakhs. On execution of the lease agreement, the possession of the plot was handed over to the company on the same date. It is also placed before Assessing Officer that a sum of Rs. 13,50,000 was borrowed from Bank of Baroda for making the payment. On the said borrowed amount expenditure of interest incurred was of Rs. 43,263. In the books of account the said amount of premium paid to MIDC along with interest totalling Rs. 27,43,263 was disclosed in the schedule of fixed assets under the head "land lease hold" as per the balance sheet drawn for the assessment year 1997-98. The claim of the assessee was that the amount of premium paid of Rs. 27 lakhs was nothing but rent paid in advance instead of paying the rent periodically, hence, to be treated as revenue or business expenditure. Similarly interest paid on borrowed amount was also claimed as revenue ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for the purpose of business and the plot was acquired to be utilized for the factory and for that purpose also money was borrowed from Bank of Baroda. The expenditure was revenue in nature because it was incurred for the purpose of business and it was nothing but the rent paid in advance. It was argued that instead of paying rent periodically for the period of lease the rent was paid at a time hence it was nothing but revenue in nature. In support copy of the agreement with MIDC dated 2-8-1996, an opinion of a Senior Counsel on the subject and the submissions filed before appellate authority are also placed on record. 5. From the side of the Revenue, learned D.R. Shri Amrish Bedi has strongly supported the view taken by the authorities below and in addition to the precedents cited in the impugned orders he has also relied upon a decision of R.K. Palshikar (HUF) v. CIT [1988] 172 ITR 311 (SC). 6. We have heard the submissions of both the sides at length in the light of the orders of the authorities below as well as the precedents cited. We have also carefully examined the terms and conditions of the impugned lease agreement dated 2-8-1996. There is no dispute about the factua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long period of 95 years which is also in a way a perpetual right conferred on the assessee. The argument from the side of the assessee is that the lumpsum payment represented an advance rent, but it is pertinent to mention that none of the terms of the impugned lease agreement mention any such condition. We also want to add that there is no classification on the basis of which it can be presumed that there was any clause of proportionate spread over of the said lumpsum amount into the period of lease of 95 years. The first appellate authority has also given a categorical finding that on careful examination of the terms of lease agreement, there is no material to hold that the premium was paid towards advance rent. So we have to bear this relevant aspect very much in mind while deciding the issue of character of expenditure whether capital or revenue in nature. 7. The issue as to whether an expenditure is of revenue or capital has always cast a problem and this is almost a never ending controversy. It is always a vexed question as to what constitute capital expenditure and what does not. However, to resolve the present issue raised as per the grounds, we have to take shelter of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn therein within the edifice of facts. Doctrine of precedents is meant to be used as a guiding factor to arrive at a judicial conclusion. 9. One more case law was cited by learned Counsel, namely, CIT v. Madras Auto Service (P.) Ltd. [1998] 233 ITR 468 (SC), wherein the finding was that right from the inception, the building was of the ownership of the lessor and by spending the money the assessee did not acquire any capital asset. The Hon'ble Apex Court has observed that the only advantage which the assessee derived by spending the money was that it got the lease of a new building at a low rent. It was held that from the business point of view, the assessee got the benefit of reduced rent hence the same was considered as obtaining a business advantage and the expenditure was considered as revenue expenditure. Evidently this is not the situation in the instant appeal. The appellant in this appeal earlier had no right over the property leased out by MIDC and there was no question of benefit of reduced rent. The case laws which were cited and considered by the Hon'ble Apex Court have looked upon an expenditure which did bring about some kind of an enduring benefit to the company a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y but a lump sum payment in instalments for acquiring a capital asset of enduring benefit. Finally it was affirmed that the High Court was right in treating the outgoings as on capital account. We cannot resist ourselves to comment at this juncture that the case of revenue in the present appeal is even on stronger footing because here the payment is one time and not even periodical. Though in the case of Pingle Industries Ltd., the payment was periodic but even then it was held that the said lump sum payment was towards acquiring a capital asset of enduring benefit. 11. On the basis of the elaborate discussion and on appreciation of the factual matrix of the instant appeal though the distinction between capital and revenue is almost a perennial problem in Income-tax law but even then the distinction is well recognized based upon certain principles laid down by several judicial authorities. To ascertain the nature of an expenditure a general principle is laid down that when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade then held a very good reason for treating such an expen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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