Modi Spinning & Weaving Mills Co. ... vs Commissioner Of Income-Tax
1992 Latest Caselaw 605 Del

JUDGMENT

B. N. Kirpal J.

1. In respect of the assessment year 1968-69, the Income-tax Appellate Tribunal has stated the case and referred ten questions of law, five at the instance of the assessed and five at the instance of the Revenue, to this court.

2.The five questions of law referred at the instance of the assessed are as follows :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the interest of Rs. 17,552 levied under section 220 of the Income-tax Act, 1961, was not an allowable deduction under section 37 of that Act ?

2. Whether, on the facts and the in the circumstances of the case, the Tribunal was legally justified in holding that the commission of Rs. 3,000 paid to the bank for the securing guarantee for the payment of income-tax was not an allowable deduction under section 37(1) of the Income-tax Act, 1961 ?

3. Whether, on the facts and the in the circumstances of the case, the Tribunal was legally justified in holding that the expenditure of Rs. 34,606 on repairs and renovations of the administrative block of the assessed's building was not admissible as current repairs under section 30(a)(ii) of the Income-tax Act, 1961 ?

4. Whether, on the facts and the in the circumstances of the case, the Tribunal was legally justified in holding that the development rebate was not admissible on Rs. 21,76,873 being the enhanced cost of machinery supplied by the S.T.C. New Delhi ?

5. Whether, on the facts and the in the circumstances of the case, the Tribunal was legally justified in holding that the sum of Rs. 14,682 was in the nature of entertainment expenditure within the meaning of section 37(2) of the Income-tax Act, 1961 ?"

3. The questions referred at the instance of the Revenue are as follows :

"1. Whether, on the facts and the in the circumstances of the case, the Tribunal was legally justified in holding that the commission paid to the bank for securing guarantee for the payment of purchase t 37(1)ax was an allowable deduction under section of the Income-tax Act, 1961 ?

2. Whether, on the fact and in the circumstances of the case, the Tribunal was justified in the law in allowing Rs. 14,916 being the assessed's share paid to Modi Industries Ltd. for the maintenance of No. 7, Ludlow Castle Guest House, Delhi ?

3. Whether, on the fact and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessed was entitled to relief under section 80J of the Income-tax Act, 1961, on the profits of the two units, viz., 'C' Mill and Yamunanagar Distillery, before deduction of any unabsorbed depreciation or carried forward loss ?

4. Whether, on the facts and in the circumstances of the case, the Appellant Tribunal was justified in holding that in ascertaining the capital employed for the purpose of section 80J of the Income-tax Act, 1961, only the liabilities relating to the particular undertaking could be deducted ?

5. Whether, on the facts an in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 47,723 being expenditure for renovating two flats taken on lease was revenue expenditure admissible under section 37 of the Income-tax Act, 1961 ?"

4. Dealing with the questions referred at the instance of the assessed, as far as question No. 1 is concerned, the facts are that the assessed paid an amount of Rs. 17,552 as interest which was leagued under section 220 of the Income-tax Act, 1961. The Income-tax Officer disallowed this claim holding that the payment of interest was essentially a personal liability and was not an expenditure for the conduct of the business activity. In appeal, the decision was upheld by the Appellate Assistant Commissioner. The second appeal to the Tribunal was also unsuccessful. It is, thereafter, that the said question No. 1 has been referred to this court.

5. As far as this court is concerned, this issue is no longer res integra. Similar questions relation to payment of interest on account of late payment of income-tax had come up for consideration before this court and in each one of those cases it was held that the interest so paid is not allowable as a deduction. These cases are Dalmia Dadri Cement Ltd. v. CIT [1980] 125 ITR 425 (Delhi), CIT v. Dalmia Dadri Cement Ltd. [1980] 125 ITR 510 (Delhi) and Jindal Industries Ltd. v. CIT [1993] 200 ITR 232 (Delhi), I.T.R. No. 90-91 of 1982, decided on October 20, 1992. Following the said decisions, question No. 1 is answered in the affirmative and against the assessed.

6. Questions No. 2 is also similar to question No. 1. Here again, the assessed had to furnish guarantee for securing payment of income-tax and it paid a commission of Rs. 3,000 in order to obtain the guarantee. The claim was disallowed by the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal. This disallowance, in our opinion, is correct in view of the decisions of this court which have been referred to hereinabove. The payment of commission is essentially similar to the payment of interest on account of delayed payment of income-tax. The commission which was payable directly related to the payment of income-tax which is not allowable as a deduction. Question No. 2 is, therefore, tax answered in favor of the Department.

7. As regards question No. 3, the facts, as found by the Tribunal, are that the assessed incurred an expenditure of Rs. 28,247 on repairs and renovation of its administrative block. Besides, a sum of Rs. 6,359 was spend for providing sanitary installation. The aggregate of this amount is Rs. 34,606 which was disallowed after the authority had found that the sum of Rs. 14,472 was the cost of marble, Rs. 9,949 were charges for cutting stones, Rs. 2,061 were spent on wages and Rs. 1,029 were expenses incurred towards polishing and connected with fixing of stones. Besides this, a sum of Rs. 960 was spent of re-plastering work which was incidental to the above activity.

8. The claim of the assessed was that this amount has been spent for carrying out current repairs and should be allowed as a deduction under section 30(a)(ii) of the Act. The claim was disallowed by the Income-tax Officer while relying upon the decision of the Calcutta High Court in the case of Humayun Properties Ltd. v. CIT [1962] 44 ITR 73.

9. The assessed filed an appeal before the Appellate Assistant Commissioner but without success. Thereafter, the Income-tax Appellate Tribunal also did not allow the said deduction but, at the instance of the assessed, referred the aforesaid question of law to this court.

10. It is vehemently contended by learned counsel for the assessed that the aforesaid expenditure of Rs. 34,606 which was incurred was on repairs and renovation of business premises of the assessed and was admissible as a deduction under section 30(a)(ii) of the Act. We are unable to agree to the submission. In the case of Gurnarain Khanna and Sons v. CIT [1986] 159 ITR 231 (Delhi), certain expenditure was incurred under the direction of the District Magistrate, which required the construction of new urinals and latrines by way of replacement of old ones. The claim was made for deduction under section 30(a)(ii) as expenses having been incurred by a tenant towards the cost of repairs in the premises. The court had held that he said expenditure was in the nature of capital expenditure and, therefore, the claim under section 30(a)(ii) was disallowed in that case.

11. Looking at the nature of the expenses incurred which resulted in the expenditure of Rs. 34,606, it is difficult for us to come to the conclusion that the amount was spent for carrying out current repairs. One of the ingredients of the amount being allowed as a dedication under section 30(a)(ii) is that the amount must be spent for purposes of carrying out current repairs. The facts as found by the Tribunal are that the administrative block had been built in 1948 and required repairs and improvement in the relevant assessment year in question. As the amount was spent for carrying out repairs which were long overdue, it is evident that the amount was not spent on current repairs. Section 30(a)(ii) is not concerned with the question as to whether the nature of the expenses towards current repairs is capital or revenue. As long as the repairs which are carried out fall under the category of current repairs, then, irrespective of the fact that the repairs have been carried out to a capital asset, and may otherwise have been regarded as a capital expenditure, the said provision specifically allows deduction. Current repairs must necessarily mean repairs which are required to be carries out from time to time as and when a defect arises. If there has been wear and tear on an item, like the floors in the present case, over a number of years and ultimately they are replaced, than such replacement cannot be regarded as current repairs. The replacement may amount to renovation or repairs which may or may not be entitled to deduction under section 37 of the Act but such an expense has been rightly held by the Tribunal as not being allowable as deduction under the said head "current repairs".

12. While referring to CIT v. Modi Industries Ltd. (No. 1) [1992] 197 ITR 517 (Delhi), learned counsel for the petitioner submitted that this court should reframe the question of law which has been referred and allow deduction under section 37 of the Act, even if no deductions allowable under section 30(a)(ii). We are unable to agree with the submission. Before the authorities under the Act, it has never been contended by the assessed that if allowance cannot be granted under section 30(a)(ii), then, in the alternative, the allowance should be granted under section 37. Had such a contention been raise, the Income-tax Appellate Tribunal would have been required to give a finding as to whether the expense so incurred was in the nature of revenue expenditure or capital expenditure. If it was capital expenditure, then no allowance can be granted under section 37. There is no finding of the Tribunal on this issue for the simple reason that the same was never raised before it. In exercising its advisory jurisdiction, the High Court undoubtedly has the power to reframe the question but a question is reframed only for bringing out the real controversy which existed between the parties before the Tribunal. A question cannot be reframed so as to bring into existence a new controversy which was never raised before or decided by the Tribunal. As already observed, no claim was make before the income-tax authorities under section 37 of the Act, and this being so, it will not be proper for or within the jurisdiction of this court to reframe the question.

13. We might, however, observe that, while disallowing the expenditure under section 30(a)(ii), the Income-tax Appellate Tribunal has given a direction that the assessed be allowed depreciation on the above expenditure, if otherwise admissible. The implication of this direction seems to be clear, namely, that the expenditure was capital in nature and, therefore, in any rent, would not have been entitled to deduction under section 37 of the Act. Question No. 3, therefore, is also answered in the affirmative and in favor of the Revenue.

14. The facts with regard to question No. 4 are that the assessed has purchased machinery which was imported from England through the State Trading Corporation. The total value of the machinery was fixed at 7,66,009 Pounds which was convertible into Indian currency at Rs. 1,02,31,216.06. The payment of the machinery was to be made by installments. The asset had been acquired before April 30, 1966, and the plant was commissioned on June 1, 1966. On June 6, 1966, the Indian rupee was devalued with the result that the assessed had to incur an extra liability of Rs. 21,76,873. The question which arose for consideration was whether this additional liability should be added to the figure of the actual cost for the purpose of determining the amount of development rebate which was allowable. The Income-tax Officer did not allow this claim and the same was upheld by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal.

15. A similar question has arisen before the Supreme Court in the case of CIT v. Arvind Mills Ltd. [1992] 193 ITR 255. In that case also, the machinery was imported and the price was payable in foreign currency. The devaluation of the Indian rupee had taken place and an additional amount became payable. The question which arose was whether, for computing the actual cost of machinery, this additional amount had to be taken into account or not. The Supreme Court held that any increase for decrease in the actual cost consequent on fluctuation in exchange rate is not to be taken into account for the purposes of calculating admissible rebate. In view of the aforesaid decision of the Supreme Court, question No. 4 has also to be answered in favor of the Department.

16. In relation to question No. 5, the facts as found by the Tribunal are that there was a guest house at Modinagar which was actually maintained by Modi Industries Ltd. Guests of the assessed also used to stay at that guest house. Half of the expenditure on its maintenance was reimbursed by the assessed. The Income-tax Officer disallowed the claim holding that the payment was not any expenditure for the purpose of the assessed's business. The Appellate Assistant Commissioner found, in appeal, that the expenses were in the nature of cost of meal, sugar, tea, fruits and vegetables, etc. i.e., for lunch and refreshment of the customers of the company which cannot be called anything but expenses wholly and exclusively laid out for the purpose of the assessed's business. When the appeal came before the Tribunal, it was contended by the Revenue that, since the expenses were for lunch and refreshment of the customers, therefore, they should be treated as entertainment expenditure and its allow ability should be considered in the light of the restrictions laid down in section 37(2) of the Act. It is thereafter that the aforesaid question of law was referred to this court.

17. On behalf of the assessed, it was submitted by Mr. Aggarwal that the sum of Rs. 14,682 was incurred by way of maintenance of guest house and, therefore, the provisions under section 37(2) were not applicable. In our opinion, the amount of Rs. 14,682 which was spent towards cost of food and refreshment of the customers of the company could not be regarded as expenditure incurred on maintenance of any guest house.

18. Sub-section (3) of section 37 related to expenses which were, inter alia, incurred on maintenance of any residential accommodation including any accommodation in the nature of a guest house. Prima facie, it would appears that such expenses would only be expenses which are incurred on the upkeep of the guest house. For maintaining a guest house, expenses like rent, electricity and water charges, wages and salary have to be paid. The question which arises for consideration is as to whether the expenses which are incurred for providing food or refreshment can also be regarded as expenses incurred for the maintenance of the guest house. It appears to us that expenses which are incurred on guests or expenses which are incurred because a guest has arrived may not be regarded as expenses incurred for maintaining a guest house. The expenses which are contemplated by sub-section (3) of section 37 are those which have to be incurred by an assessed irrespective of the fact whether a guest stays or not, or are those types of expenses which are necessary for the upkeep and running of the establishment. Provision for food refreshment is something extra. Even though a facility for providing food is available, food is made available only if and when the guests require the same. The expenses which is so incurred is an expense on the guests directly and not an expense which is reliable to the maintenance of a residential accommodation. In arriving at this conclusion, we are fortified by the decision in CIT v. Gaekwar Mills Ltd. [1992] 193 ITR 734 (Guj), where a question arose with regard to expenditure incurred on providing messing facility for employees and other merchant associated with the assessed. In this connection, the amount spent was Rs. 17,687 and the Gujarat High Court held that this expenditure was not incurred for maintenance of any residential accommodation which was in the nature of a guest house. It was observed that (at page 741) :

"However, since the expenditure of Rs. 17,687 has not been incurred for the maintenance of the residential accommodation in the nature of a guest house, no part thereof is disallowable under clause (i) of section 37(4) of the Act."

19. It was then submitted by learned counsel for the assessed that the expense so incurred represent a very small amount as compared to the turnover of the company and the same is incurred in the usual course of fruits business. This expenditure is not lavish in character and, therefore, could not be regarded as entertainment expenditure as contemplated by section 37(2) of the Act. He further submits that the ratio of the decisions of this court in the cases of CIT v. Supreme Motors (P) Ltd. [1984] 147 ITR 48 and Santlal Kashmirilal v. CIT [1986] 157 ITR 422, are clearly applicable Mr. Aggarwal has very fairly also brought to our notice a decision in the assessed's own case but of the Allahabad High Court which is reported as CIT v. Modi Spinning and Manufacturing Mills Co. Ltd. [1980] 125 ITR 361, in respect of the assessment year 1965-66 where such an expenditure was held to be governed by the provisions of section 37(2) of the Act. The submission of Mr. Aggarwal, however, is that this Bench is bound by the decisions of this court even though the decision of the Allahabad High Court is in favor of the Department.

20. Mr. Gupta, learned counsel for the Department, has vehemently contended that any expenditure which is incurred in providing food and refreshment at least to the outsiders by an assessed can only be regarded as entertainment expense and would be covered by the provisions of section 37(2) of the Act. In this behalf, learned counsel refers to three Full Bench decisions reported as CIT v. Veeriah Reddiar [1977] 106 ITR 610 (Ker), CIT v. Khem Chand Bahadur Chand [1981] 131 ITR 336 (P&H) and Phool Chand Gajanand v. CIT [1989] 177 ITR 265 (All).

21. The facts in the case of Supreme Motors [1984] 147 ITR 48 (Delhi) were that the assessed carried on the business of sale of vehicles and their accessories and, in the running of its business, it used to supply tea and cool refreshments to its customers and staff at its various establishments. It claimed that a sum of Rs. 7,359 should be allowed as a deduction in the computation of its business income. The claim was disallowed by the Income-tax Officer on the ground that it was in the nature of entertainment expenditure. The Income-tax Appellate Tribunal, however, followed the decision of the Gujarat High Court in the case of CIT v. Patel Brothers and Co. Ltd. [1977] 106 ITR 424 and deleted the said addition. The question of law which was referred to his court was as to whether the Tribunal was correct in holding that the amount of Rs. 7,359 was not in the nature of entertainment expenditure within the meaning of section 37(2B) of the Act. This court in Supreme Motors' case [1984] 147 ITR 48, took note of the divergence of judicial opinion prevalent among different High Courts of India on the point in issue. It was observed that, to a considerable extent, the question was one of degree and fact and held that (at page 51) :

"Considering the claim of the assessed against the background of its turnover and profits, we are of opinion that such a small amount incurred by the assessed, even assuming that it is for the supply of tea and cool drink to customers, cannot be described as expenditure in the nature of entertainment expenditure. Even in the decision of the Full Bench of the Punjab High Court which has been strongly relied upon by the Department, it has been pointed out that the matter would ultimately be one of degree and that the point should not be stretched to the extent of disallowing petty claims. It is for these reasons that we have come to the conclusion, without finally expressing an opinion as to the precise scope of the expression 'in the nature of entertainment expenditure' used in the statue, that so far as the present case is concerned, the conclusion of the Tribunal that the expenditure was not of that nature is fully broke out by the facts of the case and that there is no reason to differ from that conclusion."

22. The question of law which was referred was answered in favor of the assessed. Similar was the position in the case of Santlal Kashmirilal [1986] 157 ITR 422 (Delhi). The assessed there was a commission agent for foodgrains and it was a customary practice in his business to serve beverages, etc., to traders who used to come from outstation. In respect of the assessment years 1972-73 and 1973-74, it incurred expense of Rs. 10,000 and Rs. 13,791 towards cool drinks, tea food, etc., which were supplied to these persons. The question which was again referred to this court was whether the Tribunal was justified in holding that the provision for such expenses was in the nature of entertainment expenditure and, therefore, disallowable under section 37(2B) of the Act. In Santlal Kashmirilal's case [1986] 157 ITR 422 (Delhi), it was held by the court, while concluding that the expenditure was not entertainment expenditure, as follows (at page 425):

"It must be recalled that arhtias of Delhi exist because of the large wholesale market in cloth goods and they earn a small commission on the sales. The purchasers are usually people from outstation, so there is bound to be some expense in relation to food or cool drinks or tea, etc., supplied to them. This type of customary expenditure is expected from the arhtias as part of the business operation. The commission agency business can, therefore, be treated as involving a kind of customary practice to serve beverages by way of hospitality. The moot question is whether this can be called as 'entertainment expenditure'. This would depend on whether this expense can be described as for purposes of entertaining the purchasers or as part of the business operation of selling cloth in the wholesale market. We think, it is unnecessary to decide whether it is 'entertainment expense' or not, because the Legislature itself has clarified that from April 1, 1976, hospitality expenses are to be treated as 'entertainment expenditure'. It would follow that this type of expenditure before April 1, 1976, could be treated as a permissible deduction. We would, therefore, hold that in spite of the quantum being relatively high, the expense could not be treated as 'entertainment expenditure' in the circumstances of this particular line of business."

23. We find that the fact in the present case are similar to those of the cases of the Supreme Motors [1984] 147 ITR 48 (Delhi) and Santlal Kashmirilal [1986] 157 ITR 422 (Delhi). In the present case also, the amount which was spent on guests of the assessed represents a very small fraction of its business turnover. The expenditure which was incurred was not lavish and as held in the case of Santlal Kashmirilal [1986] 157 ITR 422 (Delhi). It could not be treated as entertainment expenditure. We are bound by the aforesaid two decisions of this court and, therefore, it is not necessary for us to consider any other decision which has been cited by Shri Gupta, more so when, with effect from April 1, 1976, there has been an amendment in the law and no dispute, in this connection, between the assessed and the Revenue now exists. The decision of this court in Supreme Motors' case [1984] 147 ITR 48 appears to have been accepted by the Department because no appeal was filed against it. Just as in Supreme Motors' case [1984] 147 ITR 48 (Delhi) the question of law which was similarly worded was answered in favor of the assessed, in the present case also we have no option but to answer the question of law in the negative and in favor of the assessed.

24. Coming to the references at the instance of the Revenue, the answer to question No. 1 appears to be self-evident. It is not in dispute that purchase tax has to be paid in the course of the assessed's business, whatever taxes are not allowed to be deducted are mentioned in section 40(a)(ii), namely, taxes which are levied on the profits or gains of any business or profession and, under sub-clause (ii) (a), tax paid on account of wealth-tax is also not allowable as a deduction. There being no statutory bar to the purchases tax being allowed to be deducted, it must follow that, as the said tax has been paid in connection with and for the purpose of running of the business, the same would be clearly allowable as a deduction under section 37 of the Act. Question No. 1 has, therefore, to be answered in favor of the assessed.

25. Question No. 2 relates to the assessed's share paid to Modi Industries Ltd. for the maintenance of a guest house at Delhi. This question is similar to question No. 5 which was raised at the instance of the assessed except that, in the reference at the assessed's instance, the guest house was at Modinagar while, in this reference, the guest house is at Delhi. For the reasons already stated by us hereinabove, question No. 2 has also to be answered in favor of the assessed.

26. We may only not be that the disallowance of Rs. 14,916 was made not on the ground that the expenditure was in the nature of entertainment but was made for the reason that some registers were not maintained by the assessed but were maintained by the Modi Industries Ltd. The Tribunal, in our opinion, rightly came to the conclusion that this fact by itself will not be sufficient to disallow the said deduction.

27. In regard to the relief under section 80J, the claim of the assessed was that it was entitled to the relief with regard to the profits of its two units, namely, a new 'C' Mill and Yamunanagar Distillery. It was contended before the income-tax authority that profit had to be worked out without taking into consideration the unabsorbed losses and unabsorbed depreciation. Having failed before the Income-tax Officer and the Appellate Assistant Commissioner, the assessed succeeded before the Tribunal which came to the conclusion that the assessed was entitled to relief under section 80J on the profits of the two unit mentioned above before deduction of any unabsorbed depreciation or carry forward losses. It is an admitted case that the carry forward losses had already been set off and this being so, the principle laid down by the Supreme Court in the case of CIT v. Patiala Flour Mills Co. P. Ltd. [1978] 115 ITR 640 and that of Rajapalayam Mills Ltd. v. CIT , would be clearly applicable. This question is, therefore, answered in the affirmative and against the Revenue.

28. The next question relates to the ascertainment of the capital employed under section 80J of the Act and the Tribunal had come to the conclusion that, in such ascertainment, only the liability relating to the particular undertaking could be deducted. To the same effect was the view of the Bombay High Court in the case of Indian Oil Corporation Ltd. v. Rajagopalan, ITO [1973] 92 ITR 241. This judgment of the Bombay High Court has been accepted by the Department and Circular No. 380 dated April 10, 1984, was issued which is published in [1984] 149 ITR (St.) 1, in which it is stated that the Bombay High Court had, while interpreting rule 19A of the Income-tax Rules, held that, in respect of each undertaking, the liabilities of the assessed in respect of that industrial undertaking only were to be deducted from the aggregate value of the asset of the same industrial undertaking. The said circular further stated that the Board had considered this judgment and had accepted the interpretation given by the Bombay High Court. Therefore, it must follow that the conclusion arrived at by the Tribunal was correct and that the said question has also to be answered in favor of the assessed.

29. The last question which has been referred at the instance of the Revenue relates to the disallowance of the claim of repairs of Rs. 47,723. The assessed had taken two flats situated in a building in Bombay on rant for which lease agreements were executed initially for a period of 11 months but with an option to renew for 10 period occurring expends of 11 months each. The flats were renovated by the assessed incurring expenditure on items like putting of false ceiling, painting, making some structural changes, fixing doors, etc. In addition to the sum of Rs. 47,723 which was so spent, it also incurred expenses of Rs. 19,647 and Rs. 26,103 on electric fittings and air-conditioners, respectively. The assessed itself capitalised the latter two items and it only claimed deduction under section 37 in respect of the sum of Rs. 47,723. The claim in respect thereof had first been put before the Income-tax Officer in the assessment year 1969-70. The assessed did not get any relief before the Income-tax Officer and the Appellate Assistant Commissioner but the Income-tax Appellate Tribunal came to the conclusion, following the judgment of the Allahabad High Court in the case of Girdhari Dass and Sons v. CIT [1976] 105 ITR 339, that the expenditure incurred did not bring into existence any capital asset for the assessed who was tenant of the premises in question and that the expenses had been incurred for the purposes of facilitating the carrying on of its business and must be regarded as being of revenue nature.

30. Learned counsel for the Revenue referred to the decision of this court in the case of Hotel Diplomat v. CIT [1980] 125 ITR 781 and contended that the expenditure which was incurred on construction of additional bathrooms in that case was held to be a capital expenditure. The said case is clearly distinguishable. In the case of Hotel Diplomat [1980] 125 ITR 781 (Delhi) an indefinite lease of a building was taken by the firm from partners who were co-owners of the building. The expenditure was incurred by the firm on construction of additional bathrooms and it is under these circumstances that this court came to the conclusion that the assessed had acquired a right or an advantage of enduring nature and, therefore the expenditure had to be treated as capital expenditure. Whereas, in Hotel Diplomat case [1980] 125 ITR 781 (Delhi), the lease in favor of the assessed therein was for an indefinite period, in the present case, however, the lease was only for 11 months though renewable 10 times. The asset which came into existence on the expenditure being incurred by the assessed could not be enjoyed for any great length of time and, even if extensions of the lease were granted, the maximum period of the lease would be about ten years and one month.

31. Mr. Gupta then relied upon the observations of this court in the case of Gurnarain Khanna and Sons v. CIT [1986] 159 ITR 231. In that case, the assessed had taken on lease a cinema theatre and it had incurred expenditure on a number of items. For the year 1968-69, the assessed had, inter alia, claimed deduction of two sums, namely, Rs. 3,876 and Rs. 15,000, which were spent by it on the said cinema theatre. The Income-tax Officer and the Appellate Assistant Commissioner had disallowed the expense on the ground that no details were filed while the Income-tax Appellate Tribunal felt that expenses to the extent of Rs. 15,000 were of capital nature. On a reference being made, this court came to the conclusion that the allowance with regard to Rs. 15,000 was (at page 234) :

"a factual question, even if the finding is wrong, we cannot interfere with the same. We must take the break-up as correct as far as the answer to this question is concerned."

32. In the present case, the finding of fact arrived at by the Tribunal is that the expenditure was incurred on structural changes made in the premises and the expenditure was incurred for the purpose of facilitating the carrying on of its business and was of a revenue nature. This is a finding of fact which cannot be interfered with. That apart, in the case of CIT v. Rama Krishna Steel Rolling Mills , the assessed-firm had taken certain premises for its factory for a period of five years and three was no option to renew the lease. A sum of Rs. 20,807 had been spent in carrying out repairs to the roof of the premises and this was held to be a revenue expense.

33. It is contended by learned counsel for the Revenue that, in the instant case, there were two independent flats and the assessed, by incurring the aforesaid expenditure, converted the same into one flat. According to learned counsel, a door was made in one of the walls and this brought about a change in the property.

34. It is evident that no new construction of additional space or a room was effected. All that happened was that a door was made in the common wall between the two flats. The finding of fact arrived at by the Tribunal is that the expense so incurred was for the purposes of facilitating and carrying on the assessed's business. This is a case where there has been, at best, modification or adaptation of the two flats to suit the business convenience of the assessed. The expense has been incurred by an assessed who is a tenant for a limited period can be regarded as an expenditure which brings into existence a capital asset or a benefit of an enduring nature. It is true that the benefit of enduring nature need not be a lifelong benefit but nevertheless, in order that it may be said that the benefit which accrues is of an enduring nature, the benefit should be enjoyable or enjoyed for a reasonably long period of time.

35. Counsel for the assessed has drawn our attention to the observations of the Allahabad High Court in the case of Girdhari Dass and Sons [1976] 105 ITR 339 which decision was relied upon by the Tribunal while deciding this case in arriving at its conclusion. On a rented shop, the assessed in that case incurred expenses for carrying out repairs which included making some structural changes. The question arose as to whether the expenditure so incurred was in the nature of capital expenditure. Answering the question of law in favor of the assessed, the High Court observed that when an owner incurs expenditure on additions or alterations in a building which enhances its value, the expenditure can be of a capital nature. But, if a tenant incurs an expenditure on rented building for its renovation or alteration, he does not acquire any capital assets, because the building does not belong to him as, ordinarily, such an expenditure will be of a revenue nature. To hold otherwise would amount to denying him the benefit of deduction of the expenditure at all because he will not be entitled to any depreciation allowance. Clearly, the assessed had not acquired an asset by incurring an expenditure on the rented shop. The word "endure" was interpreted by the court to mean "enduring in the way that fixed capital endures". We are in respectful agreement with the aforesaid decision and are of the view that the expenditure in question was rightly held by the Tribunal to be of a revenue nature.

36. The question as to what is the benefit of an enduring nature and when can an expense be regarded as a revenue expense also came up for consideration before the Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1. Dealing with this aspect of the case, the Supreme Court observed at page 10 as follows :

"There may be case where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessed that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessed's trading operations or enabling the management and conduct of the assessed's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case."

37. The aforesaid observations are clearly applicable to the facts of the present case. Here also, the expenditure has been incurred for the purpose of facilitating the assessed's business operations and, therefore, the Tribunal rightly came to the conclusion that the said amount was allowable as a revenue expenditure. Question No. 5 is, therefore, answered in the affirmative and in favor of the assessed.

38. No other contention was raised by counsel.

39. The reference is disposed of in the aforesaid terms. There will be no order as to costs.