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TMI Blog1998 (8) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... er the terms and conditions of the lease, the lessee (that is to say the assessee), had the right to demolish at its own expense the existing premises and appropriate to itself all the material thereof without paying to the lessors any compensation and construct a new building thereon to suit the purpose of their business as per the plan approved by the lessors. Under clause 2 of the lease deed, the lessee was required to pay a rent of Rs. 1,000 per month for the first fifteen years, Rs. 1,500 per month for the next ten years, Rs. 1,650 per month for the next ten years and Rs. 2,000 per month for the remaining years. The lease deed further provided that the new construction shall, right from the commencement of the work, be the property of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. On the application of the Department, the Tribunal referred the following question to the High Court for its determination under section 256(1) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the building expenses of Rs. 1,62,835 are not liable to be taken into account as deductible expenditure in arriving at the real income of the assessee for the assessment year 1968-69?" For the next assessment year, a similar question was raised in regard to the second sum of Rs. 50,937. The High Court has, by the impugned judgment, upheld the view of the Tribunal and has held that the two amounts constitute revenue expenditure for the concerned ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture, therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was a saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure. Moreover, the assessee in the present case did not get any capital asset by spending the said amounts. The assessee, therefore, could not have claimed any depreciation. Looking to the nature of the advantage which the assessee obtained in a commercial sense, the expenditure appears to be revenue expenditure. The test for di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rary. This court in the above case summarised the tests as follows : "1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade... If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. 3. Whether for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. In such a situation the courts have held that the expenditure was for better carrying on of the business of the assessee and could be allowed as a revenue expenditure, looking to the circumstances of each of those cases. Thus, in Lakshmiji Sugar Mills Co. P. Ltd. v. CIT [1971] 82 ITR 376 (SC), the assessee-company was carrying on the business of manufacture and sale of sugar. It paid to the Cane Development Council certain amounts by way of contribution for the construction and development of roads between the various sugarcane-producing centres and the sugar factories of the assessee. The roads remained the property of the Government. This court held that the expenditure was not of a capital nature and had to be allowed as an admissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the factory to the railway station. The amounts expended for these purposes were held to be revenue expenditure since the installations and accessories were the assets of the municipality and not of the assessee. The expenditure, therefore, did not result in creating any capital asset for the company. The advantage secured by the respondent was immunity from liability to pay municipal rates and taxes for a period of 15 years. This court said that had these liabilities been paid, the payments would have been on revenue account. Therefore, the advantage secured was in the field of revenue and not capital. In the case of CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1996] 219 ITR 521 (SC), the company contributed to the State Housing Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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