1962 (7) TMI 45 - HC - Income Tax

Summary

Issues Involved:
1. Whether the lease money and rent paid by the assessee to the lessor is a permissible deduction under section 10(2)(xv) of the Indian Income-tax Act.
2. Whether part of the initial lease amount paid by the assessee to its lessors and adjusted during the year in question is a permissible deduction under section 10(2)(xv) of the Indian Income-tax Act.
3. Whether the sum representing the lease amounts paid in the assessment years 1954-55 and 1955-56 by the assessee to its lessors are permissible deductions under section 10(2)(xv) of the Indian Income-tax Act.
4. Whether the lessors conferred on the lessee an asset of an enduring nature.

Detailed Analysis:

1. Permissibility of Lease Money and Rent as Deduction:
The primary question in the first reference was whether the lease money and rent paid by the assessee to the lessor could be considered a permissible deduction under section 10(2)(xv) of the Indian Income-tax Act. The payments were categorized into two types: a lump sum payment (lease money) made at the time of the lease execution and annual payments (rent). The Income-tax Officer disallowed both types of payments, considering them capital in nature. The Appellate Assistant Commissioner allowed 80% of both payments but the Tribunal reversed this decision, holding that the payments were capital expenditures as they conferred an interest in the land to the assessee.

2. Initial Lease Amount as Deduction:
In the second reference, the issue was whether part of the initial lease amount paid by the assessee and adjusted during the year in question was a permissible deduction. The Tribunal allowed the annual rent as a permissible deduction but disallowed the lump sum payment, considering it a capital expenditure.

3. Lease Amounts Paid in 1954-55 and 1955-56:
The third reference dealt with whether the sums of Rs. 1,215 and Rs. 1,630 paid in the assessment years 1954-55 and 1955-56, respectively, were permissible deductions. The Tribunal distinguished between the lump sum payments and annual payments, allowing only the annual payments as revenue expenditure.

4. Acquisition of an Enduring Asset:
The judgment emphasized that the nature of the expenditure, whether capital or revenue, depends on the facts of each case. The Tribunal and the High Court analyzed the leases and concluded that the lump sum payments were for acquiring an interest in land, which is a capital expenditure. The annual payments were considered rent and allowable as revenue expenditure. The court noted that the lump sum payments were described as "nazrana" and not as the price of earth, indicating they were for acquiring an enduring asset.

Conclusion:
The High Court concluded that the lump sum payments made by the assessee under the various leases were for the acquisition of an interest in land and not for the purchase of raw material. Therefore, these payments were capital expenditures and not permissible deductions under section 10(2)(xv) of the Indian Income-tax Act. The annual payments, however, were considered revenue expenditures and allowable as deductions. The references were answered in the negative, against the assessee, and returned to the Income-tax Appellate Tribunal, Allahabad, with costs awarded to the department.