TMI Blog1952 (3) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... questions of law. The third question will be dealt with separately. The facts relevant for consideration of the first two questions are as follows as appear from the statement of the case: The assessee is a manufacturer of salt in Livingipuram in Tuticorin. The salt pans originally belonged to one M.L.L. Ramanathan Chettiar. He died and was succeeded by his son Mahalingam Chettiar who was then a minor. In O.P. No. 30 of 1932, District Court, Ramnad, one Rao Sahib R. Krishna Aiyar was appointed interim property guardian by the District Court and he was in management of the M.L.M. Estate. Under the orders of the District Court and with its sanction, the pans were sub-leased under a document dated 28th March, 1934, to the assessee, Subbiah Nadar, for a period of seven years commencing from 1st January, 1934, and ending with 31st December, 1940. Under the sub-lease the assessee had to pay a sum of ₹ 36,969 to the Government on behalf of his lessor in three instalments. One instalment on 12th March, 1933, was paid even before the lease was executed on 2nd November, 1933, under an agreement. The other instalment had to be paid on the 1st April, 1934, and 1st October, 1934. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two years from 1st January, 1944, to 31st December, 1945. This document also makes reference to the construction of a railway siding. As this came into existence before the expiry of the period fixed under the earlier document, namely 31st December, 1942, it is stated in the document that by that time assessee had already applied to the railway department for constructing the railway siding and even submitted plan. If however there should be delay on the part of the railway department in constructing the railway siding by 31st December, 1942, the assessee should pay on or before the 31st December, 1942, the amount required for the construction of the siding. It is found that, in fact, by 31st December, 1942, the assessee deposited a sum of ₹ 23,894 for the construction of the railway siding as per the revised estimate. It is also found that a sum of ₹ 7,000 was paid by the assessee in constructing new salt pans. These two amounts, it was claimed on behalf of the assessee, should be deducted from the income during the assessment year 1944-45 either as rent under Section 10(2)(i) or as revenue expenditure under Section 10(2)(xv). This claim was rejected by the department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of the term that was fixed in the document; it is cut down by one year. Further, the result of constructing a railway siding is to add to the premises demised something in the nature of more or less of a permanent advantage. There is no covenant to pay, there is no means of enforcing such payment, the only obligation cast being to effect an improvement to the property leased. To describe an expenditure of that description as rent as understood in the Property Law seems to us would be a misnomer. It has none of the elements of rent nor even of premium . It is an obligation cast upon the assessee to effect an improvement, of course to the advantage of both himself and his lessor, and to enjoy that improvement during the term of the lease and if there was failure to carry out that improvement the only effect is to cut down the term of the lease. As the improvement is in the nature of an enduring advantage to the business, it can only be treated as capital expenditure and not as expenditure debitable to revenue. The sum of ₹ 7,000 expended in bringing into existence new pans for getting more income in the light of the foregoing can never be treated either as rent or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must, for the purpose of income-tax assessment, be regarded as a revenue payment. Mr. Latter, arguing for the board, said that but for the insertion of the declaration in the deed, the Crown would not have a leg to stand on. The Solicitor-General would not go quite so far as that, but he did say that it would be a crutch rather than a leg upon which he would have to support himself. And lower down in the same page it was pointed out that one has to look at the legal obligations between the parties created under the document. That is, in other words, one must look at the substance of the document and should not be influenced by the form of it. The learned Judge went on to observe:- It is said, and truly said, that whether a payment is a revenue payment or a capital payment may depend upon the angle from which you look at it--the payment may be a revenue payment from the point of view of the payer and a capital payment from the point of view of the receiver, and vice versa, it may be a revenue payment from the point of view of the receiver and a capital payment from the point of view of the payer. The fact that the sum payable by the board is a sum which, over a period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our opinion, is a case on the other line, where the sum paid was treated as capital expenditure. The assessee in that case was a company which was running a licensed hotel in a building which was obtained on lease. The lease provided that the tenant should pay all be charges that will be imposed under the Licensing Consolidation Act, 1910. His licence was renewed in 1934 and 1937, but the assessee was obliged to pay in respect of the licence monopoly value which was imposed and which was payable in instalments. It was claimed on behalf of the assessee that it was a debitable expenditure and not capital expenditure. This contention was rejected by the Court of Appeal. The matter was in the first instance heard before Lawrence, J., and in the Court of Appeal it was disposed of by Lord Greene, M.R., du Parcq, L.J., and Singleton, J. The extreme contention urged on behalf of the assessee in that case was that as the assessee was under a contractual liability to pay all the charges which could be imposed under the Licensing Act, the monopoly value which he paid was in the nature of revenue expenditure. In other words, every liability which accrues and arises out of a contract must be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passage in that case was not meant to have benefit of a permanent character and the word permanent does not mean everlasting. The duration must always be considered with reference to the period for which the premises was leased, and as long as the lease lasts and not permanent or everlasting and continuing even after the termination of the interest of the lessee. The decision of Lawrence, J., again in Henderson (H.M. Inspector of Taxes) v. Meade-King Robinson Co. Ltd. [1938] 22 Tax Cas. 97, particularly his observations at page 105, are of considerable assistance in distinguishing capital expenditure from revenue expenditure. For the foregoing reasons we have no hesitation in answering the first two questions in the negative and against the assessee. There remains the last of the questions that were referred to us. The sum of ₹ 36,680 consists of a sum of ₹ 26,326 which represented the principal paid to satisfy the compromise decree in O.S. No. 9 of 1942 to the plaintiffs in that action, one Messrs. A.R. Ramier Co., and ₹ 10,324 the cost incurred by the assessee in connection with that suit. This amount is claimed as permissible deduction under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. The claim that it is a joint venture was negatived finally by the Appellate Tribunal though the Appellate Assistant Commissioner took a different view because the partition deed entered into between the brothers negatived such a case. Even if he was a surety for his brother as there is no connection between their business and the business which is the subject matter of the assessment, the expenditure could not be deducted. Assuming that the position taken up by the assessee now before us that each was surety for the other there is no justification for treating this as a loss in respect of this business. The counsel for the assessee relied upon the decision in Commissioner of Income-tax, Madras v. Ramaswami Chettiar [1946] 14 I.T.R. 236 in support of his contention but that case proceeded upon the peculiar custom or usage which obtained among the Nattukottai Nagarathars and is not a justification for extending that principle to other cases. This point was considered in Commissioner of Income-tax, Madras v. Subramanya Pillai [1950] 18 I.T.R. 85 by this Court and the case in Commissioner of Income-tax, Madras v. Ramaswami Chettiar [1946] 14 I.T.R. 236 was distinguished. The loss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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