TMI Blog2004 (12) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... this issue. 2. The next issue relates to disallowance of Rs. 27,37,500 on account of lease money in respect of machinery paid by the assessee to Blue Star Ltd. (BSL). 3. Briefly stated the facts are that 20th Century Finance Corporation Ltd. (CFCL) and BSL entered into an agreement of lease of machinery on 31-3-1986 under which CFCL was required to purchase the machinery as required by BSL and to give the same on lease to BSL for a period of 9 years on agreed lease rentals specified in the lease summary schedule. After expiry of 5 years, the assessee approached both the parties with the intention to take the said machinery on lease for the remaining period of 4 years. Both the parties agreed to substitute the assessee as lessee in place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concept of deferred revenue expenditure under the Income-tax Act. It was also held that the judgment of the Supreme Court in the case of Associated Cement Cos. Ltd. was applicable to the facts of the case. Accordingly, he allowed the entire claim of the assessee. Aggrieved by the same, revenue is in appeal before the Tribunal. 6. The ld. Sr. DR has vehemently assailed the order of the CIT(A) by contending that the expenditure was capital in nature in view of the Supreme Court judgment in the case of Aditya Minerals (P.) Ltd. v. CIT [1999] 239 ITR 817 and the decision of the Tribunal in the case of South Eastern Coalfields Ltd. v. Jt. CIT [2003] 85 ITD 608 (Nag.). On the other hand, the ld. counsel for the assessee has submitted that the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of disbursement of the purchase price by the lessor. The lease value was fixed at Rs. 250 lakhs which was to be paid as per the schedule annexed with the agreement. As per clause 15 of the lease summary schedule, lease rentals were fixed on the basis of interest charged by commercial banks. As per the schedule, the entire lease money was to be paid within first 5 years and for the rest 4 years lease rental was of insignificant amount. One of the clauses, which is very pertinent, was that the lessee was at liberty to get the lease renewed from time to time, subject to the condition that one renewal period shall not exceed 5 years. Rest of the terms need not be mentioned as these are not relevant for the disposal of the present appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 36.50 lakhs is nothing but the price for acquiring lease hold rights in the machinery, not only for a period of 4 years, but also for the extended period for which the assessee is entitled to, by way of renewal from time to time, subject to the condition that one renewal would not exceed 5 years, since the assessee had stepped into the shoes of the original lessee and, consequently, could exercise all the rights of BSL. The lessor also had no right to refuse such renewal so long as the lessee was complying with and discharging the obligation under the agreement. Further there is no limit to such renewals and, therefore, the assessee can exercise its right to renewal of lease as many times as it wants so long as it complies with the ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 2(14) of the Act and, therefore, capital gains arising on the sale of such right was exigible to tax under section 45 of the Act. This view was also taken by the Supreme Court in the case of R.K. Palshikar (HUF) v. CIT [1988] 172 ITR 311. At this stage, it is clarified that in the case before the Patna High Court as well as in the case of A.R. Krishnamurthy, it was a case of mining lease. However, such principle has been applied even to simple lease of plot also by the Hon'ble Supreme Court in the case of R.K. Palshikar, wherein their Lordships observed as under: "It is true that the decision of the Patna High Court in Traders Miners Lid v. CIT [1955] 27 ITR 341 relates to the case of a mining lease, but, to our mind, the princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince such right was a capital asset, the payment for the transfer of such asset amounted to capital expenditure. Hence, the assessee was not entitled to claim the same as the revenue expenditure. 12. However, it may be mentioned that the Assessing Officer had allowed 1/4th of the amount in the year under consideration. Such order to that extent has become final in the absence of any order under section 263 of the Act. The ld. counsel for the assessee has contended before us that the Assessing Officer had not disallowed the claim on the ground that it was capital expenditure and, therefore, the ld. DR could not contend that it was capital expenditure. We are unable to accept such contention. The assessee had itself argued before the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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