Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Capital or revenue expenditure - Assessee-company was carrying on business of manufacture and sale of tiles and potteries - In relevant previous year it took on lease certain lands for extracting clay up to available depth for a period of 10 years - As per terms of lease, assessee was authorised to construct buildings, roads on land and sublet right conferred on it - Assessee undertook payment of all taxes, rates, land tax, etc. - Whether payment made by assessee described as salami or premium for acquisition of aforesaid land was capital expenditure - Held, yes - Whether expenditure incurred on payment of stamp charges, registration fees and legal expenses in connection with lease were to be allowed as revenue expenditure - Held, yes FACTS The assessee-company was carrying on the business of manufacture and sale of tiles and potteries. It took on lease certain lands for extracting clay up to the available depth and the lease period was for 10 years. As per the lease agreement, the assessee was authorised to construct buildings or lay roads on the schedule lands. The assessee had undertaken to defray all the taxes, rates, cess, etc., including urban land tax. The assessee was entitled to sub-lease the right conferred on it. The assessee had paid certain amount to the lessor as premium (salami) and the assessee was also liable to pay certain amount as royalty to the owner of the land. In the relevant assessment year the assessee claimed deduction in respect of the aforesaid premium paid by it. The assessee had also incurred expenditure on stamp charges, registration fees and legal expenses in connection with lease and claimed this amount also as revenue expenditure. The ITO disallowed the assessee's claim. On appeal, the Tribunal held that as the amount paid by the assessee was not rent, it was not deductible. It further held that the expenditure incurred on registration fee, stamp charges and legal expenses was not a revenue expenditure. He, therefore, disallowed the assessee's claim. On reference: HELD In view of the observations made by the various Courts it is well established that if there is a lease which confers…

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