Commissioner Of Income-Tax, ... vs New Garage Ltd.
1980 Latest Caselaw 125 Del

JUDGMENT

Ranganathan, J.

1. This is a reference at the request of the Commissioner of Income-tax by the Income-tax Appellate Tribunal. The respondent-assessed is new Garage Ltd., which is now under winding up. The reference relates to the assessment year 1962-63.

2. The assessed is a limited company. The business of the assessed during the previous year relevant to the assessment year 1962-63 was that of repairing vehicles, selling tractors, implements and spares purchased from M/s. Escorts Ltd. For the purpose of this business, the assessed-company maintained a show-room at No. 11, Scindia House, New Delhi.

3. Some time in the year 1961, the subscribed capital of the company was raised from Rs. 1 lakh to Rs. 2 lakhs. All the newly issued shares were purchased by what has been described as the Escorts group, and the Escorts group thus came to have controlling interest in the assessed-company.

4. The landlord of the above premises filed a suit against the assessed-company for eviction. Subsequently, the suit was compromised and the assessed agreed to pay a sum of Rs. 10,000. While completing the assessment for 1962-63, the ITO refused to give the assessed a deduction of the sum of Rs. 10,000 on the ground that it had not been paid for any legitimate business needs of the company. On appeal, the AAC took the view that the amount was inadmissible as it was of capital nature. However, on further appeal by the assessed, the Tribunal pointed out that in the present case there had been no change in the company itself, though there had been a change in the shareholding. The assessed-company was and continued to be the tenant of the premises and the tenancy rights which were very valuable were in jeopardy when the landlord filed an eviction suit. The assessed was merely protecting the danger to its capital assets in the shape of tenancy rights. The amount was thus spent to maintain the existing capital assets. The Tribunal pointed out that the case would have been substantially different if the assessed had paid Rs. 10,000 to acquire a new lease. In that case, the amount would have been a capital expenditure. But, in the present case, what turned the scales in favor of the assessed was the fact that it was an old tenant which continued the tenancy. The Tribunal, therefore, held that the assessed was entitled to the deduction of the sum of Rs. 10,000 in computing its business income.

5. The following question has been referred to this court for its opinion.

"Whether, on the facts and in the circumstances, the Tribunal was right in law in holding that the sum of Rs. 10,000 was a business expenditure of revenue nature entitled to deduction in computing the total income of the assessed-company ?"

6. We are in full agreement with the view taken by the Tribunal. As pointed out by it, the assessed-company was the tenant of the premises in question. The tenancy rights were very valuable rights and what all the company did was to defend and protect the existing rights. As a result of the expenditure, the assessed-company did not acquire any asset or enduring advantage. The principles in this respect are too well settled to require repetition. Suffice it to say that we agree with the view of the Tribunal and answer the question referred to us in the affirmative and in favor of the assessed. The assessed will be entitled to its costs. Counsel's fee Rs. 250.