COMMISSIONER OF INCOME TAX Vs. PINGLE INDUSTRIES LIMITED

JUDGEMENT

(1.) THE question referred to us by the Tribunal, Bombay, for our decision on the application of the CIT, Hyderabad, is as follows : - -

(2.) ACCORDING to the statement of the case, the assessee company carrying on business under the name and style of the " Pingle Industries" besides running its oil mills, had taken on lease, stone quarries from Nawab Mehdi Jung Bahadur under a lease, deed dated 9th Meher 1343F, which was for a period of 12 years commencing from 1st Ardibhehist 1346F. Under the terms of this lease, the assessee company was required to pay a sum of Rs. 28,000 per annum to the lessor ; the total amount payable for the entire period amounted to Rs. 3,36,000 out of which a sum of Rs. 96,000 was paid at the time of the execution of the lease deed and the balance of Rs. 2,40,000 was agreed to be paid at the rate of Rs. 20,000 per annum in 12 years. For facility of payment it was agreed that this sum of Rs. 20,000 could be paid in equal instalments of Rs. 1,666 -10 -8 every month. On the expiry of the period of lease, it was renewed for a further period of five years and seven months at an annual rent of Rs. 35,000.

(3.) THE assessee company has also taken on lease stone quarries from the Government. This lease was for a period of five years and the assessee company was required to pay Rs. 9,000 per year and this amount was to be paid in monthly instalments of Rs. 750 each. Under these leases, the assessee company acquired the right to extract Shahabad stones from the quarry (flag stones). After extracting these stones, the assessee company used to sell them after working on them if necessary. The assessee showed in its books of account that a sum of Rs. 37,000 was paid as lease money to the lessor and claimed that this amount should be regarded as revenue expenditure to be deducted for the purpose of assessing the income under s. 10, sub -s. (2), cl. (xv), of the Indian IT Act. The ITO and the AAC, disallowed the amount claimed for the years 1357F and 1358F respectively treating them as capital expenditure. On appeal the Tribunal came to a different conclusion and allowed the amount to be deducted holding that the sums paid by the lessee to the Jagirdar and to the Government was an expenditure incurred by the assessee wholly and exclusively for the purpose of the business of the company and, therefore, could not be regarded as capital expenditure. This view of the Tribunal is challenged by the CIT.