Mesne profits and theatre renovation were not deductible: provisional deposit was not rent, and enduring improvement was capital expenditure.

A provisional deposit made under a stay order towards mesne profits was not treated as rent for income-tax purposes because it retained the character of compensation for unlawful occupation after expiry of the lease. The expenditure on extensive theatre renovation was also disallowed, as current repairs cover only necessary recurring maintenance and not major alterations that create an enduring advantage. Since the works produced substantial improvement and could not be segregated into allowable repair items, the outlay was held to be capital in nature and not deductible as business expenditure. Both questions were answered against the assessee.

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Issues: (i) Whether the amount deposited under the court's stay order as mesne profits was allowable as rent under section 10(2)(i) of the Indian Income-tax Act, 1922. (ii) Whether the expenditure incurred on extensive renovation of the theatre was allowable either as current repairs under section 10(2)(v) or as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Issue (i): Whether the amount deposited under the court's stay order as mesne profits was allowable as rent under section 10(2)(i) of the Indian Income-tax Act, 1922.

Analysis: The amount was not rent in substance or in legal character. It represented mesne profits awarded for unlawful occupation after expiry of the lease, and the deposit was made only provisionally pursuant to the stay order pending the appeal. A provisional deposit of decretal mesne profits does not answer the description of rent paid for business premises.

Conclusion: The amount was not allowable as a deduction under section 10(2)(i) and the answer to the first question was against the assessee.

Issue (ii): Whether the expenditure incurred on extensive renovation of the theatre was allowable either as current repairs under section 10(2)(v) or as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: Current repairs contemplate necessary and recurring repairs for maintenance, not extensive renovation resulting in substantial improvement or an enduring advantage. The expenditure in question included major alterations and improvements to the theatre and its appurtenances, was undertaken to meet competition and secure lasting benefit, and was not shown to be segregable into allowable repair items. Expenditure of that nature was held to be capital in character and therefore outside section 10(2)(xv) as well.

Conclusion: The expenditure was not allowable either as current repairs or as revenue expenditure, and the answer to the second question was against the assessee.

Final Conclusion: Both referred questions were answered adversely to the assessee, and the reference failed.

Ratio Decidendi: A payment made provisionally towards mesne profits under a stay order is not rent, and extensive renovation conferring an enduring advantage constitutes capital expenditure rather than current repairs or revenue expenditure.

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