Ajit K. Sengupta, J. - (1.) The only question of law which has been referred to this court under Section 256(1) of the Income-tax Act, 1961 ("the Act"), for the assessment year 1972-73, at the instance of the Commissioner is as follows : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in directing the Income-tax Officer to allow the asses-see's claim for deduction of Rs. 29,372 being the expenditure incurred for replacing machinery of United Vegetable Mfrs. Ltd. ?"
(2.) It is necessary to state briefly the relevant facts which have given rise to this dispute. The assessee took a lease of the factory of United Vegetable Mfrs. Ltd. for 15 years under a lease deed dated June 29, 1961. The lessor-company reserved the right to terminate the lease after the expiry of five years or before for the purpose of its own use by giving three months' notice to the assessee. The said lease was to commence from November 1, 1961, as per the lease deed dated June 29, 1961, but by a supplementary agreement dated December 27, 1961, the date of commencement was made operative from March 1, 1961. The lease rent was settled at Rs. 1,50,000 annually and it was provided that during the continuance of the lease and in the course of running the factory, if any machinery or a part of it be broken or becomes out of order, the lessee shall repair or replace the same at its own cost. During the course of the lease period, the assessee was required to carry out certain repairs/replacement in the plant and machinery of the United Vegetable Mfrs. Ltd. which were situated in the aforesaid property.
(3.) United Vegetable Mfrs. Ltd., through its solicitors, T. Banerjee and Co., gave notice on November 25, 1967, to the assessee for termination of the lease after expiry of six years and asked the assessee to vacate the leasehold property within the specified period failing which the assessee was threatened to be penalised by way of payment of damages at the rate of Rs. 3,500 per day or mesne profit or other costs that would be incurred by the lessor to take legal action for recovery of possession of the leasehold property. The assessee disputed the right of the lessors to terminate the lease and sent the annual rent by cheques which were refused by the lessor. The dispute was ultimately settled by arbitration as a result of which the assessee had to pay a total sum of Rs. 6,05,127 which represented outstanding rent of Rs. 5,03,127 and interest and other claims of Rs. 1,00,000. Furthermore, the assessee had to surrender its machinery worth Rs. 29,372 for replacement of machinery belonging to the lessor which was said to have been damaged in the course of running of the assessee's business.;