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HIGH COURT OF CALCUTTA
P.B. MUKHARJI, C.N.LAIK, JJ.
East India Commercial Co. Pvt. Ltd. - Appellant
Versus
Commissioner Of Income Tax – Respondent
Appeal No : IT Ref. No. 19 of 1960
Decided On : Apr 11, 1963
INCOME TAX - Revenue expenditure - Stamp duty paid on an ineffective lease - Whether allowable as a deduction - IT Act, 1922, s. 10(2)(xv).
Fact of the Case:
The assessee-company, a lessee of a jute mill, paid a stamp duty of Rs. 4,680-13-0 in respect of a lease that was later found to be invalid. The assessee claimed the amount as a revenue expenditure under s. 10(2)(xv) of the IT Act, 1922.
Finding of the Court:
The Tribunal held that the expenditure was of a capital nature and disallowed the assessee's claim.
Issues: Whether the stamp duty paid on an ineffective lease could be claimed as a revenue expenditure under s. 10(2)(xv) of the IT Act, 1922.
Ratio Decidendi: The Court held that the expenditure was not allowable as a revenue expenditure under s. 10(2)(xv) of the IT Act, 1922, as it was in the nature of capital expenditure. The Court observed that the acquisition of a leasehold premises is a capital asset in a business of the nature carried on by the assessee and that the stamp duty paid on an ineffective lease which fails to procure the capital asset cannot be said to be an expenditure in the nature of capital expenditure.
Final Decision: The Court answered the question in the negative and held that the sum of Rs. 4,680-13-0 could not be claimed as a revenue expenditure in the year of account.
P.B. MUKHARJI, J.
1. This is an IT reference under s. 66(1) of the IT Act. The two questions asked in this reference are as follows :
"(1) Whether, on the facts and in the circumstances of the case, the sum of Rs. 4,680-13-0 and Rs. 6,017 could be claimed as a revenue expenditure in the year of account ? (2) Whether, on the facts and in the circumstances of the case the sum of Rs. 10,430 paid by the assessee company, as its contribution to the employees' provident fund, is allowable as a deduction in the asst. yr. 1951-52 ?"
2. Mr. S. Mitra, learned counsel for the assessee, has not pressed the second question as he says that he has got relief in the subsequent year for the sum of money mentioned in the second question. Mr. Mitra also has not pressed for deduction of the sum of Rs. 6,017 mentioned in the first question. Therefore, this Court is not called upon to answer the second question and the second part of the first question. The result is that the only question for answer by this Court is :
"Whether on the facts and in the circumstances of the case, the sum of Rs. 4,680-13-0 could be claimed as a revenue expenditure in the year of account ?"
The question raised is short, interesting and troublesome.
Before dealing with this question the relevant facts on which this question arises may be stated briefly. The asst. yr. is 1951-52, corresponding to the previous calendar year 1950. The assessee- company was the lessee of a jute mill situated at Ellore, belonging to Srikrishna Jute Mills Limited of Ellore. For the first time the lease of the jute mill was procured by the assessee company in 1944 for a period of five years. On the expiry of the first five years in 1949 that lease was renewed for a further period of five years by a deed dt. 16th March, 1950. This lease of the 16th March, 1950, was an ill-fated lease. A dispute arose between the lessor and the assessee-company regarding the validity of this lease. The board of directors of the lessor company, namely, Srikrishna Jute Mills Limited, contended that this lease was signed by the secretary and the treasurer who had really no authority to sign on its behalf. The lessor therefore contended that the lease of the 16th March, 1950, was ineffective and invalid. This dispute however was settled and a fresh lease was executed by the assessee-company in favour of the lessor company but on a very much more enhanced rental. The previous annual rent was Rs. 90,000 only and the new lease which was executed on the 5th Feb., 1951, raised the annual rental to Rs. 1,11,000. Comparing the terms of the two leases, namely, the lease dt. 16th March, 1950, and the lease dt. 5th Feb., 1951, it must be said that the terms also were not exactly similar but there are certain variations. Now the assessee-company paid a stamp duty of Rs. 4,680-13-0 in respect of the lease dt. the 16th March, 1950, which was said to be invalid and ineffective on the ground that the executants had no authority to sign. A sum of Rs. 6,017 was provided for in the accounts as a liability on the last day of the accounting year as an anticipated expenditure of the stamp charges relating to the execution of the revised lease dt. 5th Feb., 1951. The payment of the amount of Rs. 6,017 was not made during the year of account. The assessee claimed that both the amounts should be allowed during the year of assessment as revenue expenditure because they were incurred merely as an incidental expense for the purpose of business and there was no acquisition of a new asset. Now that Mr. Mitra, the ld. counsel for the assessee, has given up the claim of Rs. 6,017, this Court is left to the determination of the question whether this sum of Rs. 4,680-13-0 paid as stamp duty on an ineffective lease could be claimed as a deduction or as revenue expenditure in the year of account.
3. The Tribunal turned down the contention of the assessee. The Tribunal came to the conclusion that this was a case of acquisition of an asset of an
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