Lease restoration obligation absent; estimated restoration charges could not be deducted as revenue expenditure.

The Bombay HC held that the old lease did not create an enforceable obligation to restore the leased land to its original condition during the relevant year. Because that foundational liability was absent, the assessee could not claim estimated restoration charges as revenue expenditure under section 37(1) of the Income-tax Act, 1961. The Court followed its earlier interpretation of the same lease clause and declined to revisit it, and it also declined to answer the second referred question after deciding the first against the assessee. The result was that the restoration cost claim failed.

---

---

Issues: Whether the assessee was under an obligation under the lease agreement dated 23 April 1940 and section 108 of the Transfer of Property Act, 1882 to restore the leased land to its original condition, and if so, whether the estimated restoration charges were allowable as revenue expenditure under section 37(1) of the Income-tax Act, 1961.

Analysis: The Court followed its earlier decision on the same lease clause and declined to reconsider that interpretation. It held that, on the terms of the lease agreement dated 23 April 1940, no enforceable obligation existed to restore the land to its original condition during the relevant previous year. Since the foundational liability itself was absent, the claim for allowance of estimated restoration charges as revenue expenditure could not succeed. The Court also declined to answer the second referred question because the first question was decided against the assessee.

Conclusion: The assessee had no such restoration obligation under the old lease, and the estimated restoration charges were not admissible as revenue expenditure; the answer was against the assessee and in favour of the Revenue.

Ratio Decidendi: Where the lease does not create an enforceable obligation to restore leased land to its original condition, no estimated liability for restoration charges can be deducted as revenue expenditure under section 37(1) of the Income-tax Act, 1961.

---