Lease covenant expenditure on rented premises was capital in nature because it created a new structure and enduring business advantage.

Expenditure on rented premises incurred under a lease covenant for renewal, reconstruction and repairs was treated as capital in nature where the tenant was required to construct a new building, repair the existing structure and restore both to the landlord on lease expiry. The outlay was not limited to ordinary upkeep; it produced a new structure and a lasting business advantage during the lease term. The fact that ownership would not remain with the assessee after the lease period did not change the character of the expenditure, and authorities on ordinary repairs were found inapplicable. The amount was therefore not allowable as revenue expenditure or current repairs.

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Issues: Whether the expenditure incurred by the assessee on the rented premises for renewal, reconstruction and repairs was capital expenditure or revenue expenditure deductible as current repairs.

Analysis: The rental agreement required the tenant to construct a new building according to government rules, repair the existing building, incur the stipulated expenditure, and restore the building together with the newly constructed structure to the landlord on expiry of the lease. The expenditure was not confined to ordinary repairs for upkeep but resulted in construction of a new structure and permanent improvement in the business premises. The circumstance that the assessee would not retain ownership after the lease period did not alter the character of the expenditure, since the liability arose from the contractual stipulation and the outlay secured an advantage of an enduring nature for the business during the lease term. The authorities relied on by the assessee were found inapplicable on the facts.

Conclusion: The expenditure was capital in nature and not allowable as revenue expenditure or current repairs; the Revenue's contention was accepted.

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