Lump-sum payment for leasehold rights and film-processing equipment treated as deductible expense; investment allowance allowed for new machines

A lump-sum paid for leasehold rights was assessed for its character under the IT Act. Treating the payment as revenue expenditure, the HC held it was deductible in the assessment year in which it was incurred, and affirmed the Tribunal's allowance accordingly. On entitlement to investment allowance, the HC applied its earlier ruling that equipment used in film processing qualifies as plant and machinery for investment allowance, and held that the new colour film analyser and new colour film printing machine similarly qualified; investment allowance was therefore allowable. All referred questions were answered against the Revenue and in favour of the assessee.

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Issues involved: Determination of nature of lump sum payment for leasehold, allowance of expenditure as revenue, entitlement to investment allowance on new equipment.

Nature of lump sum payment for leasehold: The assessee made a lump sum payment for 47 years of rent in the assessment year 1981-82 for a 48-year lease. The terms did not include any rental increase during the lease period. The Tribunal rejected the Revenue's claim that the lump sum payment provided an enduring advantage, citing the Supreme Court's view that such expenditure should be considered revenue expenditure. The court affirmed that the lump sum payment did not change the nature of the expenditure as revenue.

Allowance of expenditure as revenue: Referring to the Supreme Court's decision in CIT v. Madras Auto Service Private Ltd., the court emphasized that expenditure should be viewed from a commercial standpoint to determine its nature as revenue or capital. The court reiterated that the lump sum payment, if made annually, would be considered revenue expenditure. Therefore, the expenditure incurred by the assessee was of a revenue character and should be deducted from its income in the year of incurrence, as upheld by the Tribunal.

Entitlement to investment allowance on new equipment: The Tribunal held that the assessee was entitled to investment allowance on a new colour film analyser and printing machine. Citing a previous case, the court affirmed that investment allowance is allowable on such equipment. The court agreed with the Tribunal's decision, stating that the assessee is indeed entitled to investment allowance on the new equipment.

Conclusion: All questions referred were answered in favor of the assessee and against the Revenue, affirming the nature of the lump sum payment as revenue expenditure and allowing the investment allowance on the new equipment.

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