Avery India Ltd. vs Commissioner of Income Tax

Suhas Chandra, J.—The Tribunal has referred the following questions of law u/s 256(1) of the income tax Act, 1961 (''the Act):

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 52,466 representing rents and taxes for Taratolla Road land was a capital expenditure and, hence, not allowable u/s 37(1) of the income tax Act?

Whether, the above expenditure of Rs. 52,466 was allowable u/s 30 of the income tax Act and if so, whether the Tribunal, on the facts and in the circumstances of the case, was justified in not allowing the expenditure on that basis?

In this proceeding the assessment year involved is 1977-78 for which the relevant year of account is the year ended on 31-12-1976.

The dispute relates to disallowance of rents and taxes paid for a plot of land at Taratolla Road, Calcutta. The facts of the case of the assessee as summarised by the Tribunal are as under:

The assessee-company took on lease 15 acres of land from the Port Commissioner for a period of 30 years from 28-9-1965 and in 1975 two-thirds of the land was assigned to Philips India Ltd. The claim made this year related to the balance one-third portion of the land on which the company proposed to set up a factory.

The Tribunal considered all aspects of the case and came to the conclusion: "we have duly considered the rival submissions. Section 30 deals with rent, rates, taxes, etc., of the premises used for the purpose of business or profession, whereas section 37(1) which is in the nature of an omnibus clause specifically excludes expenditure which is in the nature of capital expenditure from its purview. The minutes of the meetings cited would show that the object was to erect a factory and godown for the purpose of future expansion. It also shows that the assessee insisted on obtaining the right of sub-leasing the land. During the year under consideration neither a factory nor a godown had been constructed, though it had been decided to set up a factory and an administrative block. Therefore, the expenditure incurred by the assessee for the proposed expansion of the business is not a revenue expenditure but an expenditure in the nature of preliminary expenditure and consequently it should be disallowed as capital expenditure. Accordingly, we reverse the decision of the Commissioner (Appeals) and restore the decision of the ITO on this point.

The Tribunal also took note of the fact that two-thirds of the land was assigned to Philips India Ltd. and one-third of the plot of land was retained by the assessee.

There were sufficient materials before the Tribunal to come to the conclusion that the expenditure was on capital account. There is no perversity or misdirection in law in the finding. The assessee had taken a large plot of land. The assessee had insisted on acquiring the right of the land and sub-leasing the property. Two-thirds of the land had been leased out to Philips India Ltd. The rest one-third of the land was retained by the assessee for the purpose of setting up a factory and a godown. There is no finding nor any argument that this was given in respect of the existing business. On the basis of the facts found by the Tribunal, which are not under challenge, the decision of the Tribunal must be upheld. The questions are answered in the affirmative and in favour of the revenue. There will be no order as to costs.

Banerjee, J. -

I agree.