Madhya Pradesh High Court
Commissioner Of Income-Tax vs Lucky Bharat Garage. on 14 March, 1988
Equivalent citations: (1988)75CTR(MP)73, [1988]174ITR526(MP)
JUDGMENT
G. G. SOHANI, ACTG. C.J. - As directed by this court in M.C.C. No. 135 of 1982, the Income-tax Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing the claim of Rs. 38,000 as revenue expenditure ?"
The material facts giving rise to this reference briefly are as follows : The assessee is a private limited company. While framing the assessment of the assessee for the assessment year 1976-77, the Income-tax Officer disallowed the claim of the assessee for expenditure of a sum of Rs. 38,000 as revenue expenditure. The Income-tax Officer found that the assessee had purchased a plot of land in the year 1960, that Sardar Darshan Singh was occupying a structure erected on that plot and that the payment of Rs. 38,000 by the assessee to Sardar Darshan Singh represented the cost of structure and acquisition of tenancy right. The Income-tax Officer held that the expenditure of Rs. 38,000 was capital in nature and hence it could not be allowed as a permissible deduction under section 37 of the Act. On appeal, the order passed by the Income-tax Officer in that behalf was upheld. Aggrieved by that order, the assessee preferred a further appeal to the Tribunal which was allowed. As the application submitted by the Revenue before the Tribunal for making a reference was rejected, the Revenue filed an application under section 256(2) of the Income-tax Act, 1961, to this court which was allowed and the Tribunal was directed to state the case and to refer the aforesaid question of law to this court for its opinion. That is how the aforesaid question of law has been referred to this court for its opinion.
Shri Nema, learned counsel for the assessee, contended that the expenditure of Rs. 38,000 was incurred by the assessee for the preservation of his asset. and was revenue expenditure. In reply, Shri Rawat, learned Counsel for the Revenue, contended that the expenditure was incurred by the assessee for acquiring a right to possession which was of enduring nature and hence was capital expenditure.
The short question for consideration is whether the expenditure incurred by the assessee was or was not of a capital nature. As observed by the Supreme Court in Jaganmohan Rao v. CIT/CEPT [1970] 75 ITR 373, what is essential to be seen is whether the amount in question was Paid for bringing into existence a right or asset of an enduring nature. The finding of the Commissioner of Income-tax (Appeals) that the expenditure represented the cost of the structure and the acquisition of tenancy rights has not been set aside by the Tribunal. By making the payment of Rs. 38,000 to Sardar Darshan Singh, the assessee acquired the right to possession. In similar circumstances, a Division Bench of the Calcutta High Court has held in Chloride India Ltd. v. CIT [1981] 130 ITR 61 that the expenditure would be capital in nature. We respectfully agree with that view. In our opinion, therefore, the Tribunal was not right in law in allowing the claim of Rs. 38,000 as revenue expenditure.
For all these reasons, our answer to the question referred to this court is in the negative and in favour of the Revenue. In the circumstances of the case, parties shall bear their own costs of this reference.