TMI Blog1988 (7) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. ?" It is necessary to state briefly the relevant facts which have given rise to this dispute. The assessee took a lease of the factory of United Vegetable Mfrs. Ltd. for 15 years under a lease deed dated June 29, 1961. The lessor-company reserved the right to terminate the lease after the expiry of five years or before for the purpose of its own use by giving three months' notice to the assessee. The said lease was to commence from November 1, 1961, as per the lease deed dated June 29, 1961, but by a supplementary agreement dated December 27, 1961, the date of commencement was made operative from March 1, 1961. The lease rent was settled at Rs. 1,50,000 annually and it was provided that during the continuance of the lease and in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income as well as at the time of assessment proceedings, the assessee claimed the aforesaid two items, viz., Rs. 1,00,000 and Rs. 29,372, as deductible expenditure in computing its total income. But the Income-tax Officer as well as the Appellate Assistant Commissioner disallowed the assessee's claim for deduction of these two amounts on the ground that the payment of Rs. 1 lakh was made by the assessee as damage for breach of its agreement and that the expenditure of Rs. 29,372 was capital in nature. Being aggrieved by the order of the Appellate Assistant Commissioner, the assessee came up in appeal before the Tribunal. The Tribunal, after considering the rival submissions of the parties, accepted the assessees claim for deduction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the performance or apart from the performance of the contract in question. The expenditure incurred on furniture and fixtures was, therefore, of a revenue nature and deductible as such. As rightly held by this court, an asset or advantage may endure for the duration of the business of the assessee or for the duration of a contract. The question whether the advantage was of an enduring or transient nature has to be decided in considering the nature of the asset or advantage in the context of the trade in question. We are also of the view that on the facts and circumstances of the case and having regard to the conditions imposed under the deed of lease, the replacement of an asset belonging to the lessor cannot be treated as a capital expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc., were procured in April 1969. The roofs of the building were leaky. In that situation, for keeping the building in good condition during the term of the lease, which was for five years, extensive repairs were necessary. The leaks had to be stopped satisfactorily. If that was not possible, then the roofs had to be replaced. The repairs, in the peculiar circumstances of the case, could not be treated as construction but had to be taken as a case of extensive repairs and to carry out any repairs to keep the building by the lessee in a good condition, no specific agreement was required at the time of the inception of the lease. Therefore, the amount of Rs. 22,301 expended by the assessee on the repairs of the leased premises was an allowabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a revenue nature. To hold otherwise would amount to denying him the benefit of deduction of the expenditure at all because he will not be entitled to any depreciation allowance. Clearly, the assessee had not acquired an asset by incurring the expenditure on the rented shop. In the light of the principles laid down in those decisions, we have to examine the facts of this case. The lessor was allowed to use and work in the factory including the plant and machinery during the subsistence of the lease. The lessee had the obligation to deliver vacant possession of the factory and the plant and machinery thereat in proper repair and running condition at the end of the lease. The lessor is the owner of the plant and machinery. The assessee is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of the lease. In our view, where the lessee of the factory with plant and machinery has, in the performance of his obligation to maintain the machinery and plant and deliver it up in good condition, to replace the damaged machinery, he is entitled to deduction of the value of the surrendered machinery for replacement of the machinery belonging to the lessor, damaged in the course of running of the factory by the assessee in the course of its business. It is a case where the cost is a legitimate charge against the income as the damaged machinery has been restored to its original condition, and there is no improvement as such. For the reasons aforesaid, we answer this question in the affirmative and in favour of the assessee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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