1987 (5) TMI 50 - AT - Income Tax

Tribunal allows appeal, excludes Rs. 7,73,931 addition, deems payment as revenue expenditure.

The Tribunal allowed the appeal, deleting the addition of Rs. 7,73,931. It concluded that the payment made by the assessee to the Official Liquidator was ... A Partner, Partnership Firm, Revenue Expenditure Issues Involved:1. Condonation of delay in filing the appeal.2. Disallowance of Rs. 7,73,981 paid by the assessee to the Official Liquidator.3. Nature of the expenditure: whether it is capital or revenue.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The appeal by the assessee was late by 6 days. The assessee applied for condonation of the delay, and upon reviewing the application, the Tribunal found the explanation reasonable. Consequently, the delay was condoned, allowing the appeal to be decided on its merits.2. Disallowance of Rs. 7,73,981 Paid by the Assessee to the Official Liquidator:The main dispute centered on the disallowance of Rs. 7,73,981 paid by the assessee to the Official Liquidator of the landlord-company, M/s. Elphinstone Dye Works Pvt. Ltd. The business undertaking, initially belonging to a partnership firm, was acquired by the trust as a going concern. The Official Liquidator, representing the company in liquidation, challenged the tenancy agreement and the assignment to the trust, seeking vacant possession of the premises. Ultimately, a settlement was reached, wherein the trust agreed to pay Rs. 7,73,981 to settle the challenge to the tenancy.3. Nature of the Expenditure: Capital or Revenue:The assessee contended that the payment was made to protect existing tenancy rights and not to acquire a new right. They argued that the payment was necessary to remove obstructions in the enjoyment of the tenancy rights and to ensure continued receipt of business income from the Customs Department. The CIT(A) had held that the payment was of a capital nature, asserting that it was made to cure or complete the title to the tenancy right. However, the Tribunal noted that the tenancy had been acquired in 1974, and the rent had been paid to the company, including the Official Liquidator. The Tribunal emphasized that the payment was made to protect the right to earn income and not to acquire a new right.The Tribunal referred to various case laws, including the Supreme Court's decision in Empire Jute Co. Ltd. v. CIT, which held that even if an expenditure is incurred for obtaining an advantage of enduring benefit, it may sometimes be on revenue account. The Tribunal concluded that the payment was made to ensure and facilitate the activity of running the warehouse and not to acquire any new rights. Therefore, the expenditure was considered a revenue expenditure and allowed as a deduction.Conclusion:The appeal was allowed, and the addition of Rs. 7,73,931 was deleted. The Tribunal concluded that the payment was a revenue expenditure made to protect the right to earn income and not to acquire a new right.