Capital expenditure treated for leasehold accretions: gallery, shade and partitions characterised as capital and not revenue.

Expenditure on construction of a gallery, shade and internal partitions under a lease was characterised as capital expenditure because the works constituted accretions to the building, were not removable by the lessee, and created an enduring asset for the landlord or subsequent tenant; authorities distinguishing payments for raw materials or short-term rights were held factually distinguishable, and precedent treating lump-sum covenant payments as capital was applied to treat these outlays as creating permanent advantage rather than revenue deducible costs.

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Issues: (i) Whether the expenditure of Rs. 9,804, Rs. 5,199 and Rs. 2,914 in the assessment years 1954-55, 1955-56 and 1956-57 on gallery, shade and room partitions erected under the lease was capital expenditure.

Analysis: The expenditure related to construction of a gallery, shade and internal partitions which under the lease were to be treated as accretions to the building and not removable by the lessee. Such structures created an enduring asset enjoyed by the landlord or any subsequent tenant if the lease was not renewed. Authorities distinguishing payments made for procuring raw materials or short-term extraction rights were found factually distinguishable. Precedent treating lump-sum payments imposed as capital in nature, and principles recognising that a payment's character does not change because made under a covenant in a lease, were applied to characterize the works as creating a permanent advantage rather than a revenue outgo.

Conclusion: The expenditure is capital expenditure; issue answered in the affirmative.

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