1968 (8) TMI 38 - HC - Income Tax

Lease for Brick Manufacturing: Revenue vs. Capital Expenditure Decision

The High Court held that the sum paid as lease money for extracting earth for brick manufacturing was a revenue expenditure and not capital in nature. The ... Lease money - allowable as revenue expenditure u/s 10(2)(xv) of Indian Income Tax Act, 1922 Issues:Whether the sum paid as lease money was rightly disallowed as capital expenditureRs.Analysis:The case involved the disallowance of Rs. 5,934 paid as lease money by the assessee for extracting earth for brick manufacturing. The Income-tax Officer initially allowed one-tenth of the claim as revenue expense but disallowed the balance. On appeal, the Appellate Assistant Commissioner deemed the entire expenditure as capital in nature. The assessee then approached the Income-tax Appellate Tribunal, which upheld the decision. The main contention was whether the lease expenditure was revenue or capital in nature.The lease agreement allowed the assessee to extract earth for brick manufacturing or cultivation for 10 years, after which the land would revert to the owner. The Appellate Assistant Commissioner considered the entire expenditure as capital, contrary to the Income-tax Officer's decision to allow a portion as revenue expense. The Tribunal affirmed the capital nature of the expenditure.The legal arguments revolved around whether the lease acquisition constituted an enduring asset or a revenue expense. The assessee's counsel relied on the Supreme Court's decision in Pingle Industries Ltd. v. Commissioner of Income-tax, emphasizing that the expenditure was for acquiring raw material and, therefore, revenue in nature. The department's counsel contended that the lease was a capital asset due to its enduring nature, citing the lease's agricultural purposes.The High Court, after analyzing the Supreme Court's precedents and the specific facts of the case, concluded that the expenditure on the lease was a revenue expense. The Court highlighted that the lease was solely for obtaining raw material for brick manufacturing, aligning with the revenue expenditure criteria outlined in the Pingle Industries case. The Court rejected the department's attempt to introduce a new argument regarding the lease's agricultural purposes, as it was not raised at earlier stages of the proceedings.In light of the above analysis, the Court answered the question in the negative, affirming that the sum paid as lease money was a revenue expenditure and not capital in nature. No costs were awarded in the judgment.