EAST INDIA COMMERCIAL CO PVT LTD Vs. COMMISSIONER OF INCOME TAX
LAWS(CAL)-1963-4-5
HIGH COURT OF CALCUTTA
Decided on April 11,1963

EAST INDIA COMMERCIAL CO. PVT. LTD. Appellant
VERSUS
COMMISSIONER OF INCOME TAX Respondents


Referred Judgements :-

SOUTHWELL VS. SAVILL BROS. LTD. [REFERRED TO]
COLLINS VS. JOSEPH ADAMSON AND CO. [RELIED ON]
PYRAH (INSPECTOR OF TAXES) VS. ANNIS AND CO. LTD. [REFERRED TO]



Cited Judgements :-

COMMISSIONER OF INCOME-TAX VS. BAZPUR CO-OPERATIVE SUGAR FACTORY LTD [LAWS(ALL)-1982-5-85] [REFERRED TO]
GOBIND SUGAR MILLS LTD VS. COMMISSIONER OF INCOME TAX CENTRAL I [LAWS(CAL)-1978-8-29] [REFERRED TO]
MATHER AND PLATT INDIA LTD VS. COMMISSIONER OF INCOME TAX [LAWS(CAL)-1987-1-12] [REFERRED TO]


JUDGEMENT

P.B. MUKHARJI, J. - (1.): This is an IT reference under s. 66(1) of the IT Act. The two questions asked in this reference are as follows :
"(1) Whether, on the facts and in the circumstances of the case, the sum of Rs. 4,680-13-0 and Rs. 6,017 could be claimed as a revenue expenditure in the year of account ? (2) Whether, on the facts and in the circumstances of the case the sum of Rs. 10,430 paid by the assessee company, as its contribution to the employees' provident fund, is allowable as a deduction in the asst. yr. 1951-52 ?"

(2.)MR. S. Mitra, learned counsel for the assessee, has not pressed the second question as he says that he has got relief in the subsequent year for the sum of money mentioned in the second question. MR. Mitra also has not pressed for deduction of the sum of Rs. 6,017 mentioned in the first question. Therefore, this Court is not called upon to answer the second question and the second part of the first question. The result is that the only question for answer by this Court is :
"Whether on the facts and in the circumstances of the case, the sum of Rs. 4,680-13-0 could be claimed as a revenue expenditure in the year of account ?"
The question raised is short, interesting and troublesome.
Before dealing with this question the relevant facts on which this question arises may be stated briefly. The asst. yr. is 1951-52, corresponding to the previous calendar year 1950. The assessee- company was the lessee of a jute mill situated at Ellore, belonging to Srikrishna Jute Mills Limited of Ellore. For the first time the lease of the jute mill was procured by the assessee company in 1944 for a period of five years. On the expiry of the first five years in 1949 that lease was renewed for a further period of five years by a deed dt. 16th March, 1950. This lease of the 16th March, 1950, was an ill-fated lease. A dispute arose between the lessor and the assessee-company regarding the validity of this lease. The board of directors of the lessor company, namely, Srikrishna Jute Mills Limited, contended that this lease was signed by the secretary and the treasurer who had really no authority to sign on its behalf. The lessor therefore contended that the lease of the 16th March, 1950, was ineffective and invalid. This dispute however was settled and a fresh lease was executed by the assessee-company in favour of the lessor company but on a very much more enhanced rental. The previous annual rent was Rs. 90,000 only and the new lease which was executed on the 5th Feb., 1951, raised the annual rental to Rs. 1,11,000. Comparing the terms of the two leases, namely, the lease dt. 16th March, 1950, and the lease dt. 5th Feb., 1951, it must be said that the terms also were not exactly similar but there are certain variations. Now the assessee-company paid a stamp duty of Rs. 4,680-13-0 in respect of the lease dt. the 16th March, 1950, which was said to be invalid and ineffective on the ground that the executants had no authority to sign. A sum of Rs. 6,017 was provided for in the accounts as a liability on the last day of the accounting year as an anticipated expenditure of the stamp charges relating to the execution of the revised lease dt. 5th Feb., 1951. The payment of the amount of Rs. 6,017 was not made during the year of account. The assessee claimed that both the amounts should be allowed during the year of assessment as revenue expenditure because they were incurred merely as an incidental expense for the purpose of business and there was no acquisition of a new asset. Now that Mr. Mitra, the ld. counsel for the assessee, has given up the claim of Rs. 6,017, this Court is left to the determination of the question whether this sum of Rs. 4,680-13-0 paid as stamp duty on an ineffective lease could be claimed as a deduction or as revenue expenditure in the year of account.

The Tribunal turned down the contention of the assessee. The Tribunal came to the conclusion that this was a case of acquisition of an asset of an enduring character and that by taking this new lease the assessee got possession of property and machinery to run the mill and without that lease it could not have acquired the right to run the mill. Therefore, the Tribunal reached the conclusion that expenses incurred for the acquisition of this lease was of a capital nature. The Tribunal therefore refused to allow the assessee's claim for deduction of this amount of Rs. 4,680-13-0 in the computation of the assessee's income. The assessee claims this sum of money as legal expense or rather expenses for stamp duty on a document which proved ineffective in securing any asset. It claims to deduct the sum under s. 10 (2)(xv) of the IT Act which provides for an allowance, inter alia : "any expenditure (not being an allowance of the nature described in any of the cls. (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation."

(3.)IN order to avail of this allowance it is essential that the expenditure on this account must not be in the nature of capital expenditure. The assessee puts his case simply on this ground by saying that this stamp duty on an ineffective lease could not be said to be an expenditure in the nature of capital expenditure for the simple reason that this lease failed to procure any capital asset and an expenditure which fails to procure any capital asset, prima facie, would appear to be one not in the nature of capital expenditure. Common-sense supports that view. If the capital asset or the capital is not secured then how can the expenditure be called a capital expenditure. If the authorities and reported decisions were not conclusive on the point, we would have had little hesitation to accept the assessee's contention.
The acquisition of a lease where a mill is run is certainly acquisition of a capital asset. The assessee is a lessee who carries on the mill and the factory on the leasehold premises. The leasehold premises are the capital assets of the business. This is not so much a case for a renewal of a lease. The two leases mentioned did not contain any covenant for a renewal. In fact from the technical point of view it would appear to be a fresh lease on the expiry of the previous period of lease but that is neither here nor there. The point for emphasis on this aspect is that acquisition of a leasehold premises is a capital asset in a business of this nature.



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