COMMISSIONER OF INCOME TAX Vs. LUCKY BHARAT GARAGE

JUDGEMENT

(1.) AS directed by this Court in M.C.C. No. 135 of 1982, the Tribunal, Indore Bench, has referred the following question of law to this Court for its opinion :

(2.) THE material facts giving rise to this reference briefly are as follows: The assessee is a private limited company. While framing the assessment of the assessee for the asst. year 1976 -77, the ITO disallowed the claim of the assessee for expenditure of a sum of Rs. 38,000 as revenue expenditure. The ITO found that the assessee had purchased a plot of land in the year 1960, that Sardar Darshan Singh was occupying a structure erected on that plot and that the payment of Rs. 38,000 by the assessee to Sardar Darshan Singh represented the cost of structure and acquisition of tenancy right. The ITO held that the expenditure of Rs. 38,000 was capital in nature and hence it could not be allowed as a permissible deduction under S. 37 of the Act. On appeal, the order passed by the ITO in that behalf was upheld. Aggrieved by that order, the assessee preferred a further appeal to the Tribunal which was allowed. As the application submitted by the Revenue before the Tribunal for making a reference was rejected, the Revenue filed an application under S. 256(2) of the INCOME TAX ACT, 1961, to this Court which was allowed and the Tribunal was directed to state the case and to refer the aforesaid question of law to this Court for its opinion. That is how the aforesaid question of law has been referred to this Court for its opinion.

(3.) THE short question for consideration is whether the expenditure incurred by the assessee was or was not of a capital nature. As observed by the Supreme Court in Jaganmohan Rao vs. CIT/CEPT (1970) 75 ITR 373 (SC), what is essential to be seen is whether the amount in question was paid for bringing into existence a right or asset of an enduring nature. The finding of the CIT (A) that the expenditure represented the cost of the structure and the acquisition of tenancy rights has not been set aside by the Tribunal. By making the payment of Rs. 38,000 to Sardar Darshan Singh, the assessee acquired the right to possession. In similar circumstances, a Division Bench of the Calcutta High Court has held in Chloride India Ltd. vs. CIT (1980) 18 CTR (Cal) 356:(1981) l30 ITR 61 (Cal) that the expenditure would be capital in nature. We respectfully agree with that view. In our opinion, therefore, the Tribunal was not right in law in allowing the claim of Rs. 38,000 as revenue expenditure.