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TMI Blog1988 (12) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... an agreement with one Mr. Sunder Waney, the landlord of the premises, on March 2, 1969 (1960). The landlord undertook to construct factory together with a garage and a two-room flat on the plot of land situated at Kurla and to grant a lease of the said premises to the assessee-company for a period of ten years renewable for a further period of five years at the option of the assessee-company for the compensation fixed in the agreement. Three more agreements were entered into by the assessee-company with the said landlord in this connection from time to time. In order to facilitate speedy construction, the assessee-company, by one of these agreements, advanced a total sum of Rs. 99,888 to the landlord till 1963. As the landlord became insolvent, the entire amount of Rs. 1,08,088 inclusive of interest and the principal amount advanced was written off by the assessee-company. The assessee claimed the aforesaid amount of Rs. 1,08,088 as a business loss. The claim was disallowed by the Income-tax Officer and the disallowance was confirmed by the Appellate Assistant Commissioner who, inter alia, observed that the agreement had nothing to do with the current business of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 118 ITR 42, where the lease was for ten years, in CIT v Cinceita Private Ltd. [1982] 137 ITR 652, where the period of the lease was 20 years and stated that in all these cases, it was held by this court that the expenditure incurred by the assessee in executing the lease deeds, i.e., on the registration of the documents, stamp duty, etc., was business expenditure. Further, Shri Dastur relied on this court's decision in Richardson Hindustan Ltd. v. CIT [1988] 169 ITR 516, where, following the abovesaid decisions, the court held that taking premises on lease for different periods ranging from 5 to 20 years did not amount to acquisition of a capital asset nor an advantage of an enduring nature. Lastly, Shri Dastur referred to the Supreme Court's decision in CIT Mysore Sugar Co. Ltd. [1962] 46 ITR 649, and relied upon the following observations at page 653: "To find out whether an expenditure is on the capital account or on revenue, one must consider the expenditure in relation to the business. Since all payments reduce capital in the ultimate analysis, one is apt to consider a loss as amounting to a loss of capital. But this is not true of all losses, because losses in the running o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r such a purpose will be an advance on business account. Consequently, if such an amount is lost for some reason, the loss will also be business loss. Dr. Balasubramanian, learned counsel for the Department, on the other hand, stated that the basic fact, viz., that the factory was to be, acquired by the assessee for its existing business has not been found by the Tribunal nor is there any material on record to show that the factory premises were required by the assessee for the purpose of its existing business. His alternative argument is that assuming that the factory premises were required by the assessee for its existing business, the factory being not in existence at the time of the agreements, and the advances having been made for the construction of the factory, a garage and a flat thereon, the amounts advanced had no proximate connection with the carrying on of the business. There is, if at all, a remote connection. Therefore, if, for any reason, the amounts so advanced by the assessee were lost, the loss would be a capital loss. As regards the decisions relied upon by Shri Dastur, Dr. Balasubramanian pointed out that all the decisions of this court refer to expenditure on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf was rejected by the Tribunal not on the ground that the loss had not arisen out of the existing business of the assessee, but on the ground that the amounts having been advanced in the earlier years, the loss, if any, would have been treated as suffered by the assessee in the earlier years. We have carefully gone through the statement of the case and the annexures, particularly the four agreements dated March 2, 1960, March 24, 1961, June 7, 1962, and October 23, 1962, entered into between the assessee and the landlord of the premises in question. It is seen that the assessee is carrying on the business of manufacturing accounting and computing machines. It is also selling them as well as hiring them and also giving service after sales. The factory premises, as the clause relied upon by Shri Dastur, viz., clause IX(i)(j) of the agreement dated March 2, 1960, arid clause (2) of the agreement dated October 23, 1962, clearly indicated, was being acquired for its existing business. Moreover, as pointed out by Shri Dastur, the Income-tax Appellate Tribunal has rejected the claim of the assessee for a reason other than this reason. Accordingly, we proceed on the assumption that the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant observations in this case have already been noted by us earlier in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC). Apart from the fact that this court had already held that the length of the lease agreement is not very material for the purpose of determining the nature of the expenditure incurred on lease agreements, the Supreme Court has clearly laid down in Empire Jute Co. Ltd. [1980] 124 ITR 1, that even assuming that a lease for a period of 10, 15 or 20 years would amount to an advantage of enduring nature, it is not that every advantage of enduring nature would result in a capital outlay. What is required to be seen is whether the advantage of enduring nature is in the capital field. As the acquisition of premises on lease would not ordinarily be in the capital field, we have no hesitation in holding that the moneys advanced by the assessee in pursuance of these agreements to the landlord for the purposes of and in connection with the acquisition of the premises on lease were for the purpose of business. Naturally, therefore, when such advances are lost to the assessee, the loss would be a business loss and not a capital loss. The decisions relied upon by Dr. Balasubram ..... X X X X Extracts X X X X X X X X Extracts X X X X
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