TMI Blog1993 (12) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... vacant possession is an allowable business expenditure ? " The facts as found by the Tribunal are as under : This reference relates to the income-tax assessment of the assessee-company for the previous year ending January 31, 1983, corresponding to the assessment year 1983-84. The assessee-company is engaged, inter alia, in the business of taking properties on lease and letting these out for the purpose of earning income by way of rent. In the course of its aforesaid business, the assessee-company took on lease premises at 18A, B and C, Jawaharlal Nehru Road, Calcutta (commonly known as " FIRPO Building "). The assessee-company had let out different portions of the said property to various persons and the entire income by way of rent derived by the assessee-company was being assessed to tax in its hands as business income. A portion of the first floor of the said FIRPO building measuring about 3,600 sq. ft. and 6,266 sq. ft., respectively, had been let out by the assessee-company to Sri Diresh Chakraborty in terms of two separate agreements executed on April 9, 1981, and July 27, 1981, respectively. Under both these two agreements, the tenant, Sri Chakraborty, had the right t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its tenant, Sri Chakraborty, was Rs. 2,66,612.50 after making adjustments as to all charges including rent, etc. The assessee-company had to pay a sum of Rs. 6,96,288 in addition to the said sum of Rs. 2,66,612.50 to Laxmi Textile Mills Pvt. Ltd. in order to get vacant possession of 6,266 sq. ft. on the first floor of the said FIRPO building. The assessee-company claimed the payment of Rs. 6,96,288 made to Laxmi Textile Mills Pvt. Ltd. as a business expenditure. After getting vacant possession from Laxmi Textile Mills Pvt. Ltd., the assessee-company was able to hire out the said 6,266 sq. ft. at the first floor of FIRPO building to a bank at a much higher rent and it also received substantial deposits from the new tenant, viz., the bank. The Income-tax Officer held that the expenditure of Rs. 6,96,288 was purely gratuitous and it had no legal obligation to make any payment to Laxmi Textile Mills Pvt. Ltd. According to the Income-tax Officer, this expenditure of Rs. 6,96,288 could not be said to have been incurred out of commercial expediency. He, therefore, disallowed the said claim for Rs. 6,96,288 in computing the business income of the assessee-company for the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,288 was a capital expenditure. Therefore, the first question referred by the Tribunal at the instance of the Revenue, in our view, does not arise out of the order of the Tribunal in this case. The second question raised by the Revenue in this case proceeds on the presumption that the Tribunal allowed the payment of Rs. 6,96,288 as a business expenditure ignoring the decision of this court in Chloride India Ltd. v. CIT [1981] 130 ITR 61. On a close reading of the decision of the Tribunal, we did not find any reference being made by the Revenue to the decision of this court in Chloride India Ltd.'s case [1981] 130 ITR 61. In fact, the decision in Chloride India Ltd.'s case [1981] 130 ITR 61 (Cal) was neither cited nor referred to or considered by any of the authorities including the Income-tax Officer, the Commissioner of Income-tax (Appeals) as well as by the Tribunal. In that view, even the second question proceeds on an erroneous presumption which is contrary to the facts and records. While the present reference was being heard, we find that the Revenue had made another application under section 256(2) of the Income-tax Act, 1961. On the said application, we issued a rule on M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come therefrom. The assessee was able to let out the same space to the bank at a higher rent soon after getting the area vacated from Laxmi Textile Mills Pvt. Ltd. and had also received substantial deposits. The assessee-company could do so only by getting vacant possession from Laxmi Textile Mills Pvt. Ltd. on payment of Rs. 6,96,288. By making payment of the said amount, the assessee did not acquire any leasehold and/or tenancy rights in the said property. The assessee was already occupying the said property on lease. The two decisions of this court, relied upon by counsel appearing for the Revenue, were, therefore, clearly distinguishable. Sri Murarka submitted that the decision of the Kerala High Court in Commr. of Agrl. I. T. v. Bombay Burmah Trading Corporation Ltd. [1981] 131 ITR 154 clearly supported the case of the assessee. He also further submitted that the nature of a receipt in the hands of the payee was wholly irrelevant to decide the nature of the expenditure in the hands of the person making the payment and in this respect he drew our attention to the decision of the Supreme Court in CIT v. Ashok Leyland Ltd. [1972] 86 ITR 549. Sri Murarka also submitted that the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premises which were held by the assessee-company on lease was nothing but an impediment to the carrying on of the business of letting out by the assessee-company. By clearing the leasehold right of unauthorised occupancy the assessee did not acquire any new right or title as such. In fact, this court in Chloride India Ltd.'s case [1981] 130 ITR 61 held and observed as under at page 72 of the report : " It is true that if the petitioner had a right to possession aliunde or independently of the transaction with Messrs. Gasper and Co., which is the subject-matter here, then by incurring the expenditure, the assessee would not have acquired any title or right, as such. The assessee would have merely removed the impediment to its carrying on of the business or fully neutralised their asset. But, in the instant case, the Tribunal has found that Gasper was, in fact, a tenant and it has not been found that the tenancy of Gasper had, in fact, been terminated by the original lessor before the transaction with the assessee took place. Therefore, it has not been found by the Tribunal that Messrs. Gasper and Co. was continuing as one whose tenancy had expired and it was merely holding over un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the decision of this court in Mather and Platt (India) Ltd. [1987] 168 ITR 533 is also distinguishable. The respondent-assessee, in this case, did not acquire any leasehold rights in the FIRPO building by making the payment to Laxmi Textile Mills Pvt. Ltd. The respondent-assessee was, in fact, already holding such leasehold rights. By making payment to Laxmi Textile Mills Pvt. Ltd., the respondent-assessee was only able to remove the unauthorised occupant creating an impediment to the commercial exploitation of the lease right. Therefore, the decision in the case of Mather and Platt (India) Ltd. [1987] 168 ITR 533 (Cal) has no application in the facts and circumstances of the case. Counsel for the assessee drew our attention to the decision of the Kerala High Court in Commr. of Agrl. I.T. v. Bombay Burmah Trading Corporation Ltd. [1981] 131 ITR 154. In this case, it was found by the Tribunal that the assessee had incurred an expenditure of Rs. 5,312.35 in the previous year relevant to the assessment year 1968-69 under two heads, viz., for the eviction of a tenant from a building within the estate promises, and, secondly, for filing a writ petition challenging the legality of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew to save business expenditure in the accounting period as well as a few subsequent years ; it was not made for acquiring any enduring benefit or income-yielding asset. By avoiding certain business expenditure, the company could not be said to have acquired enduring benefit or any income-yielding asset. The expenditure was of a revenue nature and was an allowable deduction in computing the profits of the assessee-company. This case also supports the respondent-assessee in this reference. If the assessee-company had taken legal proceedings against Laxmi Textile Mills Pvt. Ltd., it could have incurred huge legal expenses and substantial time might have been spent in getting the leasehold premises vacated from Laxmi Textile Mills Pvt. Ltd. By making payment of the said sum of Rs. 6,96,288, the assessee-company was able to remove Laxmi Textile Mills Pvt. Ltd. forthwith and to let out the very same space to the bank at a much higher rent and also receive substantial deposits from the new tenant. These facts clearly go to support the case of the respondent-assessee that the expenditure in question was a revenue expenditure and was laid out wholly and exclusively for the purpose of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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