MOTWANI AND COMPANY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THESE two cases have come before this court on references by the Income-tax Appellate Tribunal, Cuttack Bench, under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as the "Act"), at the instance of the assessee. The question referred by the Tribunal for consideration by this court reads as follows :

(2.) THE Tribunal in its order came to hold that the question whether a particular expenditure can be said to have been incurred on capital or revenue account is a mixed question of fact and law and the finding in the case, being based on interpretation of a document, a question of law arises out of the order. Accordingly, it allowed the applications filed by the assessees and made the references.

(3.) THE Bombay High Court in the case of CIT v. Cinceita Private Ltd. [1982] 137 ITR 652, considered the following facts : the assessee took on lease for an initial period of 20 years a building on a monthly rental of Rs. 3,500, with an option for renewal of the lease at a higher rent, to be used as the business premises of the assessee. For the relevant assessment year, the assessee claimed as deduction an expenditure of Rs. 10,700 towards registration fees, stamp duty and solicitors' fees in connection with the drawing up of the lease deed. THE Income-tax Officer disallowed the entire expenditure on the ground that it had been incurred by the assessee for acquiring a benefit of an enduring nature and hence was capital expenditure. THE Appellate Assistant Commissioner upheld the order of the Income-tax Officer. On further appeal, the Tribunal held that what the assessee had secured for itself was the use of the leasehold property and it was not for securing that right that it had incurred the expenditure, that the expenditure was incurred to meet certain expenses which the assessee had necessarily to incur in order to conform to the legal requirements for executing a valid lease deed, that the expenditure was laid out to facilitate the carrying on of the business of the assessee and, therefore, was permissible as revenue expenditure. On a reference, the High Court held that though the period of the lease was for 20 years with an option for renewal at a higher rent, yet the expenditure claimed by the assessee was the only expenditure required for drawing up a proper and effective lease deed, namely, the expenditure in respect of the stamp duty, registration charges and professional fees paid to the solicitors, who prepared and got registered the lease deed. THEre was no element of premium in the amount claimed as expenditure for acquiring the leasehold premises. Moreover, the expenditure would have been the same even if the lease was for a shorter duration provided the period of the lease was more than one year. Merely because the period of the lease was for a longer duration, it could not be regarded as decisive of the circumstance as to whether the asset or advantage secured was of an enduring nature. THErefore, the sum of Rs. 10,700 was allowable as revenue expenditure.