TMI Blog1978 (8) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure was of a capital nature. Being aggrieved, the assessee preferred an appeal. The AAC, following a decision of the Supreme Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52, held that the expenditure in question had been incurred by the assessee for the use of a property under a leasehold for a limited period of time and that such expenditure had been incurred to obtain the use of the premises and to facilitate the carrying on of the business of the assessee. The AAC, accordingly, upheld the contentions of the assessee. The revenue preferred a further appeal before the Tribunal. It was contended in the appeal that an expenditure incurred for acquiring a right to run the said sugar mill for the said period of five years was definitely on capital account and that a capital asset in the form of the assessee's right to run and exploit the said factory for the said period had come into existence under the said lease. Accordingly, the expenditure incurred on that account was submitted to be in the nature of capital expenditure. The decision of the Supreme Court in the case of India Cements Ltd. [1966] 60 ITR 52 was sought to be distinguished on the ground that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal was clearly wrong in holding that the expenditure of the said sum for meeting the stamp duty, registration fees and solicitor's fees, could be equated with payment of a premium. The fact that the said amounts were spent once for all and that such expenditure was not recurring, were also not conclusive for the purpose of determining the nature of the expenditure. According to Mr. Bajoria, the following facts found in the instant case determined the controversy in favour of the assessee. It was the admitted position that the assessee was already carrying on business in sugar and running a factory. Therefore, the expenditure incurred was for an existing business. The assessee under the said deed of lease obtained mere user of the factory at Matihari for a limited period. This could not be said to be an advantage of an enduring nature which could be equated with a capital asset. Lastly, the expenditure in the instant case was not directly connected with the transaction. No part of the said sum in dispute had been paid to the lessor by the lessee. This was an expenditure which arose incidentally in the course of the assessee's business and in order to record lawfully a v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such trade ....... ' or 'any interest which might have been made if any such sums as aforesaid had been laid out at interest '. Lord Atkinson first held in that case that the express prohibitions did not apply to the facts of the case and then proceeded to discuss general principles. These observations show that where there is no express prohibition, an outgoing, by means of which an assessee procures the use of a thing by which it makes a profit, is deductible from the receipts of the business to ascertain taxable income. On the facts of this case, the money secured by the loan was the thing for the use of which this expenditure was made. In principle, apart from any statutory provisions, we see no distinction between interest in respect of a loan and an expenditure incurred for obtaining the loan. " Mr. Prabir Majumdar, learned counsel for the revenue, has contended on the other hand that the law was well settled that a leasehold interest was a capital asset and, therefore, any expenditure incurred in obtaining a leasehold interest or any expenditure incurred in connection therewith must be held to be a capital expenditure. In support of his contentions, Mr. Majumdar cited the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d acquired in consideration of this recurring payment was in the nature of a capital asset, the right to carry on its business unfettered by any competition from outsiders within the area. It was a protection acquired by the company for its business as a whole. It was not a part of the working of the business but went to appreciate the whole of the capital asset and make it more profit yielding. The expenditure made by the company in acquiring this advantage, which was certainly an enduring advantage, was thus of the nature of capital expenditure and was not an allowable deduction under section 10(2)(xv) of the Income-tax Act. " It appears to us that the decision of the Supreme Court in India Cements Ltd. [1966] 60 ITR 52 has little application in the facts before us. In that case, the Supreme Court proceeded on the basis that a loan obtained was not an asset or an advantage for the enduring benefit of the business of the assessee and further observations of the Supreme Court in its judgment have to be read in that context. In the instant case, no doubt the assessee had obtained the right of user of the factory at Matihari for a period of five years, but under the lease the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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