Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1962-63 - Assessee, engaged in manufacture and sale of readymade garments, had to vacate are of its premises under rent control proceedings - Thereafter he obtained lease of new building and, in doing so, assessee paid to landlord an amount over and above stipulated rent, which was not refundable- Whether since as object of assessee was merely to produce profits and not to create any asset of capital character and further expenditure was incurred for continued running of business, said expenditure was allowable business expenditure- Held, yes FACTS The assessee, who was carrying on the business in the manufacture and sale of ready made garments, had to vacate one of its branch office under rent control proceedings. And so, he obtained a lease of a new building and, in doing so, he had to pay certain amount to the landlord as an extra payment over and above the stipulated rent, which was not refundable. The assessee claimed deduction of this amount as revenue expenditure which was disallowed by ITO with whom the AAC concurred. But the Tribunal found that the expenditure was very much akin to the payment of rent for the new premises and allowed the appeal of the assessee. On reference: HELD The expenditure did not appear to have been incurred for the purpose of bringing into existence any asset or advantage of an enduring character. There was nothing on record to show that the sum was paid to the landlord in order to secure the lease for any term of years. The circumstances of the case showed that the expenditure had to be incurred by the assessee for the purpose of continued running of his business, though in a new premises. The object of the assessee, as it seemed on the facts, was merely, by incurring the business expenditure, to produce profits and not to create any asset of a capital character. That would suffice to dispose of the reference. Therefore, the Tribunal was right in holding that expenditure in question the was deductible in arriving at the assessee's income from business expenditure in question. Note: The case has been decided in favour of the…

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