1981 (5) TMI 34 - AT - Income Tax

Summary

Issues Involved:

1. Whether the sum of Rs. 1,930 is an appropriate deduction against the income of the year.
2. Whether the lump sum payment of Rs. 1,88,513 constitutes revenue or capital expenditure.
3. Whether the payment should be treated as advance rent or a premium.

Issue-wise Detailed Analysis:

1. Whether the sum of Rs. 1,930 is an appropriate deduction against the income of the year:

The primary issue in this case was whether the sum of Rs. 1,930, claimed by the assessee as a deduction, was appropriate against the income of the year. The Members of the Bench had a difference of opinion on this matter. The case was referred to a third Member, who concluded that "no part of the sum of Rs. 1,930 is an appropriate deduction against the income of the year under consideration." Consequently, the majority view held that no part of the sum of Rs. 1,930 was an appropriate deduction against the income of the year under consideration.

2. Whether the lump sum payment of Rs. 1,88,513 constitutes revenue or capital expenditure:

The assessee had taken a lease for 99 years from its sister concern and paid a lump sum of Rs. 1,62,500 plus an additional Rs. 26,012.71 to the Gujarat Industrial Development Corporation (G.I.D.C.). The assessee claimed 1/99th of the total sum as revenue expenditure for the assessment year in question. The Revenue argued that the lump sum payment was referred to as "Premium Price" in the lease deed, indicating it was a capital expenditure for obtaining a long-term lease, which is a benefit of an enduring nature. The Supreme Court's decision in CIT vs. Panbari Tea Co. Ltd. was cited, emphasizing that the nomenclature used in the lease deed helps ascertain the intention of the parties, although it is not conclusive. The terms of the lease indicated that the lump sum was paid before the execution of the lease deed, suggesting it was a premium and not advance rent. Therefore, the lump sum payment was considered capital expenditure, and the assessee was not entitled to the deduction claimed.

3. Whether the payment should be treated as advance rent or a premium:

The assessee argued that the total amount of Rs. 1,88,513 paid was advance rent for the entire period of 99 years, given the nominal yearly rent of Rs. 10 for a large piece of land. The Revenue countered that the lease deed explicitly referred to the sum of Rs. 1,62,500 as "Premium Price," indicating it was a capital payment for obtaining a long-term lease. The lease deed's terms and the Supreme Court's decision in CIT vs. Panbari Tea Co. Ltd. were considered, which distinguished between premium (capital payment) and rent (revenue payment). The lease's conditions, including the low yearly rent and the requirement for continuous control by the G.I.D.C., suggested that the lump sum payment was a premium. Consequently, the payment was considered capital expenditure, not advance rent.

Separate Judgments:

One Member disagreed with the majority view, arguing that the entire initial payment should be treated as advance rent, considering the absurdly low annual rent of Rs. 10. This Member believed the payment was for the continuous enjoyment of the lease and should be deducted proportionately over the lease period. However, the majority view prevailed, and the appeal was dismissed.

Conclusion:

In conclusion, the majority held that the lump sum payment of Rs. 1,88,513 was a capital expenditure, not advance rent. Therefore, no part of the sum of Rs. 1,930 was an appropriate deduction against the income of the year. The appeal was dismissed based on the majority view.