COMMISSIONER OF INCOME TAX Vs. BHOWMICK J N

JUDGEMENT

(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 :

(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.

(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 :