1981 (8) TMI 129 - AT - Income Tax

Summary

Issues:
1. Disallowance of payment made to vacate premises as capital expenditure.
2. Nature of payment made to vacate premises - "Purgre" or capital expenditure.
3. Claim of enduring advantage due to tenancy-at-will status.
4. Interpretation of tenancy laws in Karnataka.
5. Comparison between tenant-at-will and lessee status.
6. Deductibility of payment made to secure tenancy.

Analysis:

The case involved a Deptl. Appeal arising from the order of the CIT (Appeals) regarding a payment made by a firm to vacate premises adjacent to its showroom for business expansion. The issue was whether the payment of Rs. 8,000 was a capital expenditure or a revenue nature. The ITO disallowed the payment, considering it as an enduring advantage. However, the CIT (Appeals) found the payment akin to "Purgre" and allowed it, stating that no enduring advantage was acquired by the firm.

In the appeal, it was argued that under Karnataka tenancy laws, tenancy-at-will provides an enduring advantage as the owner cannot vacate the tenant. The Deptl. Rep. claimed the firm would be a statutory tenant, benefiting from tenant protection laws. The argument was supported by legal precedents emphasizing that enduring benefit does not mean everlasting benefit, citing the Madras High Court and Bombay High Court decisions.

The firm's counsel countered, stating that tenant-at-will does not equate to a lessee position. She argued that vague assertions about tenant's ownership under tenancy laws were biased towards landlords and lacked legal basis. Referring to the Madras High Court decision, she asserted that the payment made to secure a lease was deductible, highlighting the superior position of her client as the payment was made to a third party.

Upon careful consideration, the Appellate Tribunal upheld the CIT (Appeals) decision, stating that the payment was for securing a tenancy, not acquiring property, and did not create an enduring right. Drawing parallels to previous court decisions, the Tribunal concluded that the payment to a third party for a tenancy-at-will was of a revenue nature. The Deptl. Appeal was dismissed, affirming the deductibility of the payment made to secure the tenancy.