1963 (4) TMI 85 - HC - Income Tax

Stamp duty on ineffective lease not deductible as revenue expenditure. Contribution to EPF deduction not addressed.

East India Commercial Co. Private Ltd. Versus Commissioner of Income-Tax, West Bengal

The court held that the sum of Rs. 4,680-13-0 paid as stamp duty on an ineffective lease was capital expenditure and could not be claimed as a revenue ... - Issues Involved:1. Whether the sum of Rs. 4,680-13-0 could be claimed as a revenue expenditure in the year of account.2. Whether the sum of Rs. 10,430 paid by the assessee company as its contribution to the employees' provident fund is allowable as a deduction in the assessment year 1951-52.Issue-wise Detailed Analysis:1. Whether the sum of Rs. 4,680-13-0 could be claimed as a revenue expenditure in the year of account:The primary issue in this case is whether the sum of Rs. 4,680-13-0 paid as stamp duty on an ineffective lease could be claimed as a revenue expenditure. The facts reveal that the assessee-company was the lessee of a jute mill and had renewed its lease in 1950, which was later disputed and deemed invalid. Consequently, a new lease was executed in 1951 at a higher rent. The assessee paid a stamp duty of Rs. 4,680-13-0 on the invalid lease and claimed it as a revenue expenditure.The Tribunal rejected the assessee's claim, concluding that the expenditure was for acquiring an asset of an enduring character, and hence, it was capital in nature. The Tribunal's rationale was that the lease provided the right to run the mill, which is a capital asset.The assessee argued that since the lease was ineffective, the expenditure did not secure any capital asset and should not be considered capital expenditure. However, the court noted that the law attributes expenditure to capital if it is made 'with a view' to bring a capital asset or advantage into existence, regardless of the outcome. This principle is supported by cases such as Henderson v. Meade-King Robinson & Co. Ltd., Southwell v. Savill Brothers Ltd., and Pyrah v. Annis & Co. Ltd.The court referred to the remarks of Viscount Cave L.C. in British Insulated and Helsby Cables v. Atherton, which emphasized that expenditure made with a view to securing an asset for the enduring benefit of a trade should be treated as capital expenditure. The Supreme Court of India has endorsed this view in Commissioner of Income-tax v. Finlay Mills Ltd., where it was held that the purpose of the expenditure determines its nature.The court also examined other relevant cases, including Southwell v. Savill Brothers Ltd., where it was held that expenses for unsuccessful applications for new licenses were capital expenditure, and Pyrah v. Annis & Co. Ltd., which reinforced that expenditure aimed at improving capital assets is capital in nature.Based on these authorities, the court concluded that the sum of Rs. 4,680-13-0, paid as stamp duty on an ineffective lease, was capital expenditure. Therefore, the assessee could not claim it as a revenue expenditure in the year of account.2. Whether the sum of Rs. 10,430 paid by the assessee company as its contribution to the employees' provident fund is allowable as a deduction in the assessment year 1951-52:The second issue was not pressed by the assessee's counsel, as relief had been obtained in the subsequent year. Consequently, the court did not address this question.Conclusion:The court answered the first question in the negative, holding that the sum of Rs. 4,680-13-0 could not be claimed as a revenue expenditure in the year of account. There was no order as to the costs of this reference. The second question was not addressed due to the assessee's counsel not pressing it.