Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1962-63 - Assessee had taken lease of a tea estate and claimed total rent paid in lump sum and in installments as revenue expenditure - Whether considering terms of lease, nature of right to extend plantation area of tea estate, long period of 22 years of lease, other rights to work and manage tea estate, and also other ancillary rights, it had to be held that lessee had acquired an enduring benefit for a period of 22 years on terms of lease by spending and agreeing to spend amounts in question described as rent - Held, yes - Whether lease in instant case was really not for purpose of merely obtaining stock-in-trade but it was an enduring benefit and, therefore, expenditure incurred for acquiring that enduring benefit was capital expenditure - Held, yes FACTS The assessee took lease of the Tea Estate by a deed of lease, for a period of 22 years at a total rent out of which a sum had been paid in advance and the balance sum had been spread over for seventeen years after expiry of five years from the commencement of the lease. The ITO allowed only part of lease rent claimed and disallowed the balance considering that a substantial portion was capital expenditure in nature. On appeal, the AAC disallowed the entire amount of lease rent holding that under the lease deed the assessee did not acquire stock-in-trade but it acquired an asset of enduring nature, namely, absolute right to pluck the green leaves from the tea garden bushes and to extend the garden and obtain the produce thereof, and export quota right etc. On second appeal by the assessee, the Tribunal allowed a sum taking the average of the total payment during the period of 22 years comprising the period of the lease in question. The Tribunal held that the initial lump-sum payment and the balance payable as per terms of the lease deed was the payment in the nature of the lease rent. The Tribunal thus found that the sum paid was the total rent reserved and spread over for the total period of the lease, that is, 22 years, and the payment represented revenue expenditure. On reference: HELD The…

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