R.N.MISRA, J. - (1.)AT the instance of the Revenue, the Tribunal, Cuttack Bench, has stated this case and referred the following question for opinion of the Court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing depreciation at 1/11th of the expenditure reckoned with the year of construction as deferred revenue expenditure ?"

(2.)ASSESSEE is an individual and the relevant asst year is 1969 -70 corresponding to the accounting period ending on March 31, 1969. Assessee maintains accounts according to the mercantile system. During the year, assessee derived income from running of a hotel known as Sagarika Hotel located on the sea beach at Puri. The hotel premises were taken on lease by the assessee. Under the covenant of lease executed on 13th of July, 1967, assessee obliged himself to erect within eighteen months from the date of the lease, masonry structures on the two sides of the vacant plot of land in front of the existing building known as Ashu Bhavan as per plan to be approved by the lessors and the building was to be of very good type and the expenditure was estimated at Rs. 60,000 in the minimum. This masonry structure undertaken to be built by the assessee was to vest in the lessor on the expiry of the term of the lease (i.e., 12 years 11 months) and it was further expressly stipulated that failure to raise the construction within the time indicated would entail forfeiture of the lease, During the year, assessee claimed deduction of a sum of Rs. 38,397 said to have been spent on the aforesaid head and the same was pressed to be accepted as revenue expenditure. The ITO treated the expenditure to be of capital nature and rejected the claim for deduction.
Before the AAC, assessee reiterated his claim for deduction. Alternately, he claimed depreciation. The AAC was of the view that the fact that the expenditure was required to be incurred by the assessee under the covenant of lease did not alter the true nature of the expenditure. On an analysis, he came to the conclusion that no part of the payment could be taken as rent paid in advance and accordingly came to hold that the expenditure was of capital nature. He declined to accept the claim of depreciation in view of the fact that the asset was not owned by the assessee.

(3.)BEFORE the Tribunal, upon further appeal by the assessee, the same claim was recanvassed and it was disposed of by a single member with the following observation :
"The crucial point for my consideration is whether by the additional construction the assessee has increased the existing holding capacity or whether such an outlay could be construed as payment of rent in advance. On a proper construction of the lease deed, I have no hesitation to hold that the amount in question cannot be designated as payment of advance rent. However, since the lease has to enure for twelve years, the assessee is entitled to have depreciation admissible to a sum calculated at 1/1lth of the expenditure reckoned with the year of construction as deferred revenue expenditure."