Income Tax Appellate Tribunal - Mumbai
Universal Capsules (P) Ltd. vs Deputy Commissioner Of Income Tax on 28 January, 2000
ORDER
M.V.R. Prasad, A.M.
1. This appeal is directed against the order of the CIT(A) dt. 22nd May, 1992, for the asst. yr. 1986-87.
2. The first ground is that the CIT(A) erred in confirming the disallowance of Rs. 10,000 under s. 37(2A) of the IT Act.
3. The assessee has incurred an expenditure of Rs. 25,000. It is claimed that the factory of the assessee is at Dahanu, i.e., at a distance of 100 miles from Bombay, and so the assessee had to incur this expenditure on its employees. It is also claimed that the CIT(A) erred in not granting the basic deduction under s. 37(2A). It is made out that if the basic deduction is not allowed, it means that the disallowance out of entertainment expenditure is of the order of Rs. 15,000 out of the total expenses claimed of Rs. 25,000.
4. We are of the view that in the circumstances of the case, the assessee may be allowed the statutory deduction under s. 37(2A) of Rs. 5,000. The ground is allowed to this extent.
5. The next ground is that the CIT(A) erred in confirming the disallowance of Rs. 1,32,020, being the expenditure on stamp duty in respect of the lease deed for the factory building taken on lease at Dahanu, on the ground that it was expenditure of a capital nature.
6. The assessee took the factory building on lease from M/s. Maneklal Scientific Research Foundation vide an indenture dt. 20th June, 1984, for a period of 35 years. The building had an area of 61,300 sq. ft. The rent was Rs. 83,000 per month for the first six months and Rs. 1 lakh per month for the remainder period of the lease. Under the terms of the lease, the lessee is permitted, at its own cost, to add, alter or make any other changes in or to the demised premises or any part thereof or construct permanent structures therein. The lease is also renewable for another period of 35 years. The stamp duty and registration charges in terms of the indenture are to be borne by the lessee. In terms of the lease agreement, the assessee incurred stamp duty of Rs. 1,32,020 and claimed it as revenue expenditure. The AO, however, disallowed the claim relying on the decision of the Hon'ble Calcutta High Court in the case of Gobind Sugar Co. (P) Ltd. vs. CIT (1979) 117 ITR 747 (Cal). The CIT(A) confirmed the disallowance for the reasons given by the AO. He also mentioned that the view taken by the AO is supported by the decision of the Hon'ble Supreme Court in the case of Challapalli Sugar Ltd. vs. CIT (1975) 98 ITR 167 (SC) in which it was held that direct expenses incurredi in the context of the acquisition of a capital asset have to be capitalised.
7. Before us, the learned counsel for the assessee mentioned that the decision of the apex Court in the case of Challapalli Sugars Ltd. vs. CIT (supra) is distinguishable as it related only to interest liability during the construction period on funds borrowed for the acquisition of a capital asset. He stated that the Hon'ble Bombay High Court has held in a series of decisions that where an asset is obtained on lease, the expenses incurred are allowable as a revenue deduction. In this context, he has relied on the following decisions :
(1) CIT vs. Bombay Cycle & Motor Agency Ltd. (1979) 118 ITR 42 (Bom); (2) CIT vs. Hoechst Pharmaceuticals Ltd. (1978) 113 ITR 877 (Bom); (3) CIT vs. Cinceita (P) Ltd. (1982) 137 ITR 652 (Bom); (4) Richardson Hindustan Ltd. vs. CIT (1988) 169 ITR 516 (Bom); (5) CIT vs. Khandelwal Mining & Ores (P) Ltd. (1983) 140 ITR 701 (Bom); and (6) Empire Jute Co. Ltd. vs. CIT (1980) 124 ITR 1 (SC).
8. In the light of the above decisions, mentioned at Sr. Nos. (1) to (5), it is pleaded that the jurisdictional High Court has consistently held that the expenses incurred on acquiring assets on lease for varying periods from 5 to 98 years has been held to be allowable as revenue expenditure. It is also claimed that in view of the decision of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT (supra), it has to be held that the advantage, if any, acquired by the assessee in the present case is not in the capital field and so the expenditure of Rs. 1,32,020 is allowable as revenue expenditure.
9. The learned Departmental Representative, on the other hand, mentioned that the decision of the Hon'ble Calcutta High Court in the case of Govind Sugar Co. (P) Ltd. vs. CIT (supra) has been approved by the Hon'ble Supreme Court in its judgment dt. 16th July, 1997 in the case of Gobind Sugar Mills Ltd. vs. CIT (1998) 232 ITR 319 (SC). So it is claimed that the Revenue authorities were justified in disallowing the expenditure of Rs. 1,32,020.
10. We are of the view that the Revenue deserves to succeed. We have perused the decisions of the Hon'ble Bombay High Court cited by the learned counsel for the assessee. In the case of CIT vs. Khandelwal Mining & Ores (P) Ltd. (supra), which dealt with a case of an asset acquired on a lease of 98 years, the jurisdictional High Court was considering the allowability of the expenditure incurred by the lessor and not the lessee. The jurisdictional High Court held that no new asset or source of income came into existence by the lease in the hands of the lessor. We do not see how the ratio of this decision is applicable to the assessee who stands in the position of a lessee. The other decisions considered by the jurisdictional High Court do not deal with long-term leases of the order of 35 years. They all deal with leases of lesser durations. The decision of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT (supra) is also distinguishable, as in the present case, we are of the view that the advantage is in the capital field. In view of the decision of the Hon'ble Supreme Court in the case of Govind Sugar Co. (P) Ltd. (supra), we hold that the expenditure of Rs. 1,32,020 is not allowable as revenue expenditure. The ground is rejected.
11. The next ground is that the CIT(A) erred in confirming the disallowance of Rs. 53,260 under the provisions of s. 43B, out of which an amount of Rs. 8,273 related to provident fund contributions.
12. Before us, it is claimed that the provident fund contribution has to be allowed as a deduction in the subsequent year, when it is paid. We agree with this contention. The deduction for this amount may be allowed in the next assessment year. It is claimed that the balance of Rs. 44,987 is allowable as a deduction, as it has been paid before the due date for the filing of the return and so the benefit of the first proviso to s. 43B has to be allowed in view of the decision of the apex Court in the case of Allied Motors (P) Ltd. vs. CIT (1997) 224 ITR 677 (SC). We agree with this contention also. The deduction for Rs. 44,987 may be allowed. Subject to these remarks, the ground is allowed.
13. The appeal is partly allowed.