FORD AND MACDONALD LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THESE three references under S. 66(1) of the IT Act relate to the same assessee for different assessment years and arise more or less a common question and can be conveniently disposed of by a common judgment. The first reference relates to the asst. yrs. 1948 -49, 1949 -50, 1950 -51, 1951 -52 and 1952 -53. The second reference relates to the asst. year 1953 -54 and the third reference to two assessment years, namely, 1954 -55 and 1955 -56. The question which has been referred in the first reference is :

(2.) IT will be clear from the form of the question that relates to two classes of money paid : (1) the "lease" money; and (2) the rent. It may be stated that in the fifteen leases which are under consideration in these cases a certain sum of money was paid by the assessee in a lump sum at the time of the execution of the lease, and this has been described in the question as "lease" money. Another sum of money was payable by the assessee year after year and this has been described in the question as "rent". In the second and the third references the questions referred are stated respectively as follows :

(3.) IT appeared from the assessment record that the assessee itself had added back Rs. 9,277 and Rs. 3,431 paid to the lessors as lease money in the asst. yrs. 1948 -49 and 1949 -50 respectively though during the assessment proceedings an allowance in respect of those amounts was claimed. In the subsequent years, however, it claimed the allowance of the amounts paid as lease money etc. The details of the payments claimed are as under : In the years involved in the first reference the ITO disallowed both classes of payments, namely, the lump sum payments and the annual payments and also the expense connected with the execution of the leases holding that the expenditure was of a capital nature and not a revenue nature so as to be allowable under S. 10(2)(xv). In appeal by the assessee the AAC allowed 80 per cent of both classes of payments relying on the Full Bench decision of the Lahore High Court in Benarsidas Jagannath vs. CIT (1947) 15 ITR 185 (FB) but holding that as in some of the leases the right of cultivation had also been given to the assessee, and even though no cultivation may actually have been done still as the right was there the entire amount could not be allowed. The Department went up in appeal to the Tribunal against the orders of the AAC and the Tribunal allowed the appeals and reversed the orders of the AAC holding that under the leases the assessee had acquired an interest in the land and the payments made by it to the lessors were not the purchase price of raw material as claimed by the assessee but was an item of expenditure of a capital nature. It will be noticed that neither the assessee nor any of the authorities below made any distinction between the two classes of payments, the lump sum payments initially made by the lessee at the time of the execution of the lease and the annual payments made or to be made by it for the duration of the lease.