Lease premium for cinema hall held capital in nature and not deductible as revenue expenditure

A lump sum premium paid to obtain lease rights for a cinema hall was treated as capital expenditure because it secured an enduring advantage in the capital field, distinct from the separate annual rent payable for continued enjoyment of the lease. The amount paid during the accounting year formed part of the same premium and was therefore not deductible as revenue expenditure. The earlier balance also did not qualify for deduction in the year under consideration.

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Issues: Whether the lump sum premium paid for obtaining the lease of the cinema hall was capital expenditure or revenue expenditure, and whether the related amount paid during the accounting year was deductible in that year.

Analysis: The lease notification and the lease terms showed a lump sum described as premium and a separate annual rent. The premium was paid to obtain the lease rights for carrying on the cinema business, while the annual rent was for continued enjoyment of those rights. The payment secured a right of enduring advantage in the capital field and was not merely an advance payment of rent. The amount paid during the year formed part of the same premium, so the portion paid in the accounting year was not deductible as revenue expenditure. The balance paid earlier did not qualify for deduction in the year under appeal.

Conclusion: The premium was held to be capital expenditure and not allowable as a revenue deduction; the deduction claim for the amount paid during the year failed.

Final Conclusion: The majority view treated the premium as capital in nature, upheld the revenue's challenge on the main issue, and rejected the assessee's claim for deduction of the disputed amount.

Ratio Decidendi: A lump sum paid as premium for obtaining lease rights, where it secures an enduring advantage in the capital field, is capital expenditure and not deductible as revenue expenditure, even if the lease also requires separate periodic rent payments.

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