1991 (9) TMI 102 - AT - Income Tax

Assessee's Shop Tenancy Payment Disallowed as Capital Expenditure

The Tribunal held that the payment of Rs. 64,000 by the assessee for obtaining tenancy of certain shops was capital expenditure as it constituted a ... Capital Expenditure Issues Involved:1. Nature of the expenditure (capital or revenue).2. Deduction eligibility in the computation of taxable income of the assessee.Issue-wise Detailed Analysis:1. Nature of the Expenditure (Capital or Revenue):The primary issue was whether the payment of Rs. 64,000 by the assessee to M/s. S.L.N. Charities for obtaining tenancy of certain shops was capital or revenue expenditure. The Tribunal held that the payment was in the nature of a 'premium' paid for the acquisition of the tenancy, and it is well established that 'expenditure on the payment of premium is capital expenditure.' The Tribunal cited several cases to support this view:- Ramakrishna & Co. v. CIT [1973] 88 ITR 406: The Madras High Court held that payment for acquiring a capital asset constituted capital expenditure.- Henriksen, (Inspector of Taxes) v. Grafton Hotel Ltd. [1942] 10 ITR Suppl. 79 (KB): Lord Greene M.R. stated that payment of a premium on the grant of a lease is not deductible.- Mac Taggart v. B.E. Strump [1925] 10 TC 17 (C.Ss.): Payment for renewal of a lease was held to be capital expenditure.- CIT v. Project Automobiles [1984] 150 ITR 266: The Bombay High Court held that premium payments for obtaining a lease were capital expenditure.The Tribunal dismissed the assessee's reliance on the case of CIT v. Cinceita (P.) Ltd. [1982] 137 ITR 652, stating that the expenditure in that case was for drawing up a lease deed without any element of premium, making it revenue expenditure. Similarly, the cases of CIT v. Hoechst Pharmaceuticals Ltd. [1978] 113 ITR 877 and CIT v. Bombay Cycle & Motor Agency Ltd. [1979] 118 ITR 42 were found irrelevant as they did not involve premium payments.The Tribunal also considered the Supreme Court's decision in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, which dealt with the removal of a restriction on loom hours, classifying the expenditure as revenue in nature. However, the Tribunal distinguished this case, noting that the assessee in the present case acquired a valuable asset (tenancy right) by paying the premium, making it capital expenditure.Lastly, the Tribunal addressed the assessee's reliance on F.S. Ghandhi v. CWT [1990] 184 ITR 34, a Wealth-tax Act case, and concluded that despite the tenancy being for a short period, it still constituted an asset, and the contribution made was capital expenditure.2. Deduction Eligibility in the Computation of Taxable Income of the Assessee:The second issue was whether the deduction could be allowed in the computation of the taxable income of the assessee, given that the shops were utilized by the partnership firm and not directly by the assessee. The Income-tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) both denied the deduction on this ground. The assessee argued that the business carried on by a firm is effectively carried on by its partners, and thus the premises should be considered as utilized by the assessee in the course of his business. However, the Tribunal did not delve into this issue in detail, as they had already concluded that the expenditure was capital in nature and hence not deductible.Conclusion:The Tribunal dismissed the appeal of the assessee, holding that the expenditure of Rs. 64,000 was capital expenditure and not deductible. Consequently, the second issue regarding the utilization of the shops by the partnership firm was deemed unnecessary to address.