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1965 Supreme(P&H) 59
PUNJAB & HARYANA HIGH COURT
D.K.Mahajan and Kapur JJ.
Regal Theatre
Versus
Commissioner Of Income-tax, New Delhi
Income tax Reference No. 3 of 1961,
Decided On : MARCH 8, 1965
Expenditure incurred by an assessee for putting up wooden panels in a leased cinema building is an expense of a "revenue nature" and not an expense of a "capital nature" where the panels are not an asset of an enduring nature and are of little value if removed from the walls after the lease period.
Headnote:
INCOME TAX - Expenditure incurred by assessee for putting up wooden panels in lounge, staircase and restaurant - Whether capital or revenue expenditure - Held, revenue expenditure.
Fact of the Case:
The assessee, a lessee of a cinema building, incurred an expenditure of Rs. 16,323 for putting up wooden panels in the lounge, staircase, and restaurant of the building. The Income-tax Officer disallowed the expenditure as it was of a capital nature. The Appellate Assistant Commissioner allowed the expenditure as it was incurred for commercial expediency and was necessary for the show business. The Tribunal reversed the decision of the Appellate Assistant Commissioner and held that the expenditure was of a capital nature.
Finding of the Court:
The court held that the expenditure incurred by the assessee in fixing the wooden panels was an expense of a "revenue nature" and not an expense of a "capital nature".
Issues: Whether the expenditure incurred by the assessee for putting up wooden panels in the lounge, staircase, and restaurant was capital or revenue expenditure.
Ratio Decidendi: The court observed that the purpose of the wooden panels was undoubtedly a business purpose. However, the expenditure incurred in connection with the wooden panels was not an expenditure of a capital nature because: * The lease was up to 1959 and the assessee had to remove the fixtures from the walls on the termination of the lease. * The fixtures being of thin plywood are stuck to the walls and would be of little value if they are removed from the walls after the lease period. * The assessee could not reconstruct the walls in view of the terms of the lease. * The assessee had to carry on his business - the business being show business - and in order to attract customers, the cinema house had to be kept in certain presentable condition, particularly in keeping with its locality and the clientele. * The expense was incurred to achieve a business object and was not an asset of an enduring nature.
Final Decision: The court answered the question referred to it in the negative, holding that the expenditure incurred by the assessee in fixing the wooden panels was an expense of a "revenue nature" and not an expense of a "capital nature".
MAHAJAN, J.
1. The Income-tax Appellate Tribunal (Delhi Bench) has referred the following question of law for our decision under section 66(1) of the Indian Income-tax Act, 1922 :
"Whether the expenditure of Rs. 16,323 incurred by the assessee for putting up wooden panels in the lounge and on the staircase and the restaurant was expenditure of a capital nature ?"
2. The dispute relates to the assessment year 1956-57.
3. The assessee is the lessee of the cinema building known as "Regal Theatre" in Connaught Circus, New Delhi. The lease deed was executed on the 14th July, 1949, and was duly registered under the Indian Registration Act. Only three clauses of the lease-deed have some relevancy and, therefore, they are set out below :
"6. That the lessee shall not make any additions or alterations whatsoever to the premises and shall not sub-let the premises or any part thereof without the consent in writing of the lessor obtained previous to the sub-letting......
8. That the lessee will keep the premises in good and healthy condition and at the expiry of the lease or sooner determination thereof, the lessee will deliver possession of the premises with all furniture, fixtures, fittings, heating and cooling plants, etc., in the same good order and condition in which they received them, fair wear and tear alone excepted.
9. That the lessor shall carry out annual white and colour washing and repairs to the building hereby demised, when necessary."
4. The building was leased with all furniture, fixtures, fittings, heating and colling plants, the bar and residential suites attached to it along with new installations of cinema machines, projectors, fans and various other electrical appliances for a period of 10 years from the date of the registration of the deed. The wall of the lounge had cracks at some places and there were also some ugly spots thereon. The assessee, in order to cover up these cracks and ugly spots, paneled the lounge, the staircase and the restaurant. In the lounge, the booking offices, the visitorsstand and a place for refreshment are housed. The cost of paneling came to Rs. 18,640. Out of this amount, Rs. 7,340 was on account of replacement and Rs. 11,300 was on account of decoration expenses. The assessee claimed deduction of these amounts under section 10(2) (xv) on the ground that this expenditure had been incurred for the purposes of the business and was in the nature of "revenue expenditure". The Income-tax Officer disallowed both these items for the following reasons :
"(a) Paneling of walls amounted to nothing else but putting on fixtures and any expenditure incurred on fixtures was a capital expenditure.
(b) The cinema building was on lease. If the assessee failed to get the renewal of lease then he had the option to remove the fixtures and sell it in the market.
(c) According to the lease-deed all the repairs were to be done by the lessor and so the lessee should have claimed the same from the lessor."
5. Against this decision, an appeal was taken by the assessee to the Appellate Assistant Commissioner of Income-tax. The Appellate Assistant Commissioner allowed the appeal and held that out of the two items already referred to, an amount of Rs. 350 out of the first item and an amount of Rs. 1,427 out of the second item related to petty repairs and were definitely "revenue expenditure" and had to be allowed as such. With regard to the remaining amount of Rs. 16,323 which had been spent for the paneling of the front verandah, corners, and restaurant, it was observed that the same was incurred by the assessee in view of commercial expediency and was necessary for the show business. It was also further held that this paneling was by fixing a thin layer of teak plywood to the walls and did not form a permanent fixture to the building. The premises were available to the assessee for the present up to 1959 and, therefore, it could not be held that the expense involved was of a "capital nature". The aforesai
