LIBERTY CINEMA Vs. COMMISSIONER OF INCOME TAX
LAWS(CAL)-1963-2-11
HIGH COURT OF CALCUTTA
Decided on February 19,1963

LIBERTY CINEMA Appellant
VERSUS
COMMISSIONER OF INCOME TAX Respondents


Referred Judgements :-

RHYMNEY IRON CO. LTD. VS.FOWLER [REFERRED TO]
IRC VS.WARNES AND CO. LTD. [REFERRED TO]
SESSIONS,19SCOTLAND,19IN LAW SHIPPING CO. LTD. VS.IRC [REFERRED TO]
BRITISH INSULATED AND HELSBY CABLES LTD. VS.ATHERTON [REFERRED TO]
MITCHELL VS.B.W. NOBLE LTD. [REFERRED TO]
THOMAS MERTHYR COLLIERY CO. LTD. VS.DAVIS [REFERRED TO]
ITAT VS. CHHAGANMAL MANGILAL [REFERRED TO]
CIT VS.MAHARAJADHIRAJ SIR KAMESHWAR SINGH OF DHARBHANGA [REFERRED TO]
MAHABIR PARSHAD AND SONS VS.CIT [REFERRED TO]
SOUTHERN VS.BORAX CONSOLIDATED LTD. [REFERRED TO]
COOKE VS.QUICK SHOE REPAIR SERVICE [REFERRED TO]
PROPRIETARY LTD. VS.FEDERAL COMMR. OF TAXATION [REFERRED TO]
SOUTHERN VS.BORAX CONSOLIDATED LTD. [REFERRED TO]
ASSOCIATED PORTLAND CEMENT MANUFACTURERS LTD. VS.IRC [REFERRED TO]
MORGAN VS.TATE AND LYLE LTD. [REFERRED TO]
COMMISSIONER OF INCOME TAX WEST BENGAL VS. CALCUTTA AGENCY LIMITED [REFERRED TO]
COMMISSIONER OF INCOME TAX WEST BENGAL VS. H HIRJEE [REFERRED TO]
HAJI AZIZ AND ABDUL SHAKOOR BROS VS. COMMISSIONER OF INCOME TAX BOMBAY CITY II [REFERRED TO]
JAGAT BUS SERVICE VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
ANAND BEHARILAL VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
J K WOOLLEN MANUFACTURERS PRIVATE LIMITED VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
MADANLAL SOHANLAL VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
HUMAYUN PROPERTIES LTD VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
TRANSPORT COMPANY PRIVATE LIMITED VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
CENTRAL INDIA SPINNING WEAVING AND MFG COMPANY LTD VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
SUBHODHCHANDRA POPATLAL VS. COMMISSIONER OF INCOME TAX EXCESS PROFITS TAX BOMBAY NORTH KUTCH AND SAURASHTRA BARODA [REFERRED TO]
NEW SHORROCK SPINNING AND MANUFACTURING CO LTD VS. COMMISSIONER OF INCOME TAX BOMBAY NORTH KUTCH AND [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. RANJIT SINGH S B [REFERRED TO]





JUDGEMENT

- (1.)THIS is a reference under s. 66(1) of the Indian IT Act. The reference seeks the answer of this Court to the following question: "Whether, on the facts and in the circumstances of the case, the sum of Rs. 24,498-12-6 incurred for repairs and renovation of the cinema hall and the sum of Rs. 9,890 incurred for legal expense could be allowed as expenses under any of the provisions of s. 10(2) of the Indian IT Act ?"
(2.)THE assessee is the lessee of a cinema house belonging to one Jagannath Prosad Roy. Jagannath gave a lease on the 18th Feb., 1946, of the house along with machinery, furniture and other fixtures to one Mahendra Narayan Roy for a period of five years with an option to renew the lease for another five years. THE interest of Mahendra Narayan Roy in the said property was sold on the 12th May, 1950, in auction sale on account of income-tax demands to the partners of the assessee-firm along with two other gentlemen, M/s Agarwalla and Advani. THE sale was held under the Public Demands Recovery Act. A sale certificate was granted on the 21st June, 1951. THEreafter, on the 26th July, 1951, and the 30th Sept., 1951, the assessee purchased the interests of M/s Agarwalla and Advani.
The assessee's accounting year for the asst. yr. 1953-54 commences from the 28th Oct., 1951. The facts found are that the expense for the acquisition of the lease upto that date was for Rs. 68,673. In the year of account it was claimed that there was an additional expense of Rs. 34,388 on account of the leasehold buildings and rights and the total expense under the head was, in all, for Rs. 1,03,062. What the assessee did was to write off one-fifth of this amount on the ground that the lease was for five years and the amount written off was one-fifth of Rs. 1,03,062, i.e., Rs. 20,612.

In the statement of the case it is clearly laid down as a fact that the assessee's claim in all the years under appeal was that the amount of Rs. 20,612 should be allowed as an expense written off against acquisition of the lease. The assessee's contention was that so far as the amount of Rs. 34,388 spent in the first year of account was concerned, the entire amount should be allowed as an expense on the ground that the expense was incurred, firstly, for the renovation and repairs and, secondly, for the legal expense for completing its title for the acquisition of the lease. This fact is found and stated in the statement of facts in this reference. It must be emphasised that the claim was, firstly, in respect of renovation and repairs and, secondly, for legal expenses for completing the assessee's title for the acquisition of the lease. The reason for emphasising these two facts will be apparent when we proceed to discuss and decide the question referred to us.

(3.)THE only other fact that should be set out here is that the cinema hall was closed for about seven months and the assessee had to renovate the building and furniture in order to properly start the business. In the statement of case the argument was that the business was carried on from the first day of the accounting year and the expense incurred for such renovation was also made during the time when the exhibition of the pictures was made. THE assessee claimed that the sum of Rs. 34,388 should be allowed as repairs under s. 10(2)(v) or as an expense under s. 10(2) (xv) of the IT Act. THE said expense included Rs. 9,890 incurred after the commencement of the business for legal expenses in connection with the proceedings for setting aside the certificate sale and Rs. 24,498-12-6 and Rs. 9,890 are the subject-matter of the question referred to us.
The assessee lost before the ITO, the AAC and also before the Tribunal. But the claim of the assessee at these different stages changed from time to time. It will be necessary, therefore, to refer to the orders of these three authorities. The ITO finds as a fact that from the 1st July, 1951 to the 27th Oct., 1951, there was no business as the cinema hall was renovated and arrangement for exhibition of the films was finalised. The actual show started on the 29th Oct., 1951. There was no activity from the 12th May, 1950, when the properties in the cinema were sold by auction on the 1st July, 1951, in connection with the litigation concerning the certificate sale. The actual certificate of sale was granted on the 21st June, 1951. The assessee debited all expenses in connection with the starting of the cinema in an account under the head "leasehold building account" but charged proportionate amount for the relevant assessment year. It was found as a fact by the ITO that these expenses were of capital nature and related to the period prior to the starting of the business. Therefore, he disallowed the amount charged to revenue account. If the finding is that these expenses were all of capital nature, very little remains of this reference so far as the assessee is concerned. The AAC emphasised the fact that these expenses were of capital nature and had been incurred before the commencement of the business of the firm as found by the ITO. But he records the fact that the assessee did not seriously contest those findings of the ITO that the expenses were all of capital nature. There was a refinement of the assessee's case before the AAC. The refinement is that it was contended that even though the expenses were of capital nature, some part of the expenses which were incurred during the accounting year should be allowed. At that time the claim for repairs and renovation was made by the assessee under s. 10 (2)(v) of the IT Act and there was no question of making any claim under s. 10(2)(xv) of the IT Act. The facts found and the conclusion reached by the AAC are that the repairs and renovation expenses incurred in the relevant year were all of capital nature and, therefore, were not covered by s. 10(2)(v) of the IT Act. He added a further reason to come to that conclusion by recording the fact that the assessee was claiming the current repair expenses separately under a different head called "hall maintenance account" as distinguished from the "leasehold building account". Therefore, the AAC enforced his conclusion that the repairs and renovation expenses claimed in the leasehold building account could not be claimed as current repairs under s. 10(2)(v) of the Act. He, therefore, rejected the appeal of the assessee and confirmed the assessment.



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