ORDER
M.V. R. Prasad, A.M.
This appeal is directed against the order of the Commissioner (Appeals) dated 22-5-1992, for the assessment year 1986-87.
2. The first ground is that the Commissioner (Appeals) erred in confirming the disallowance of Rs. 10,000 under section 37(2A) of the Income Tax Act.
3. The assessee has incurred an expenditure of Rs. 25,000. It is claimed that the factory of the assessee is at Dahanu. i.e., at a distance of 100 miles from Bombay, and so the assessee had to incur this expenditure on its employees. It is also claimed that the Commissioner (Appeals) erred in not granting the basic deduction under section 37(2A). It is made out that if the basic deduction is not allowed, it means that the disallowance out of entertainment expenditure is of the order of Rs. 15,000 out of the total expenses claimed of Rs. 25,000.
4. We are of the view that in the circumstances of the case, the assessee may be allowed the statutory deduction under section 37(2A) of Rs. 5,000. The ground is allowed to this extent.
5. The next ground is that the Commissioner (Appeals) erred in confirming the disallowance of Rs. 1,32,020, being the expenditure on stamp duty in respect of the lease deed for the factory building taken on lease at Dahanu, on the ground that it was expenditure of a capital nature.
6. The assessee took the factory building on lease from M/s Maneklal Scientific Research Foundation vide an indenture dated 20-6-1984, for a period of 35 years. The building had an area of 61,300 sq. ft. The rent was Rs. 83,000 per month for the first six months and Rs. 1 lakh per month for the remainder period of the lease. Under the terms of the lease, the lessee is permitted, at its own cost, to add, alter or make any other changes in or to the demised premises or any part thereof or construct permanent structures therein. The lease is also renewable for another period of 35 years. The stamp duty and registration charges in terms of the indenture are to be borne by the lessee. In terms of the lease agreement, the assessee incurred stamp duty of Rs. 1,32,020 and claimed it as revenue expenditure. The assessing officer, however, disallowed the claim relying on the decision of the Hon'ble Calcutta High Court in the case of Gobind Sugar Co. (P) Ltd. v. CIT : [1979]117ITR747(Cal) . The Commissioner (Appeals) confirmed the disallowance for the reasons given by the assessing officer. He also mentioned that the view taken by the assessing officer is supported by the decision of the Hon'ble Supreme Court in the case of Challapalli Sugar Ltd. v. CIT : [1975]98ITR167(SC) in which it was held that direct expenses incurred in the context of the acquisition of a capital asset have to be capitalised.
7. Before us, the learned counsel for the assessee mentioned that the decision of the Apex Court in the case of Challapalli Sugars Ltd. (supra) is distinguishable as it related only to interest liability during the construction period on funds borrowed for the acquisition of a capital asset. He stated that the Hon'ble Bombay High Court has held in a series of decisions that where an asset is obtained on lease, the expenses incurred are allowable as a revenue deduction. In this context, he has relied on the following decisions:
(1) CIT v. Bombay Cycle & Motor Agency Ltd. : [1979]118ITR42(Bom) ;
(2) CIT v. Hoechst Pharmaceuticals Ltd. : [1978]113ITR877(Bom) ;
(3) CIT v. Cinceita (P) Ltd. : [1982]137ITR652(Bom) ;
(4) Richardson Hindustan Ltd. v. (1988) 169 ITR 516 ;
(5) CIT v. Khandelwal Mining & Ores (P) Ltd. : [1983]140ITR701(Bom) ; and
(6) Empire Jute Co. Ltd. v. CIT : [1980]124ITR1(SC) .
In the light of the above decisions, mentioned at Serial Numbers (1) to (5), it is pleaded that the jurisdictional High Court has consistently held that the expenses incurred on acquiring assets on lease for varying periods from 5 to 98 years has been held to be allowable as revenue expenditure. It is also claimed that in view of the decision of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. (supra), it has to be held that the advantage, if any, acquired by the assessee in the present case is not in the capital field and so the expenditure of Rs. 1,32,020 is allowable as revenue expenditure.
8. The learned Departmental Representative, on the other hand, mentioned that the decision of the Hon'ble Calcutta High Court in the case of Gobind Sugar Co. (P) Ltd. (supra) has been approved by the Hon'ble Supreme Court in its judgment dated 16-7-1997 in the case of Gobind Sugar Mills Ltd. v. CIT : [1998]232ITR319(SC) . So it is claimed that the revenue authorities were justified in disallowing the expenditure of Rs. 1,32,020.
9. We are of the view that the revenue deserves to succeed. We have perused the decisions of the Hon'ble Bombay High Court cited by the learned counsel for the assessee. In the case of CIT v. Khandelwal Mining & Ores (P) Ltd. (supra), which dealt with a case of an asset acquired on a lease of 98 years, the jurisdictional High Court was considering the allowability of the expenditure incurred by the lessor and not the lessee. The jurisdictional High Court held that no new asset or source of income came into existence by the lease in the hands of the lessor. We do not see how the ratio of this decision is applicable to the assessee who stands in the position of a lessee. The other decisions considered by the jurisdictional High Court do not deal with long-term leases of the order of 35 years. They all deal with leases of lesser durations. The decision of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. (supra) is also distinguishable, as in the present case, we are of the view that the advantage is in the capital field. In view of the decision of the Hon'ble Supreme Court in the case of Govind Sugar Co. (P) Ltd. (supra), we hold that the expenditure of Rs. 1,32,020 is not allowable as revenue expenditure. The ground is rejected.
10. The next ground is that the Commissioner (Appeals) erred in confirming the disallowance of Rs. 53,260 under the provisions of section 43B, out of which an amount of Rs. 8,273 related to provident fund contributions.
11. Before us, it is claimed that the provident fund contribution has to be allowed as a deduction in the subsequent year, when it is paid. We agree with this contention. The deduction for this amount may be allowed in the next assessment year. It is claimed that the balance of Rs. 44,987 is allowable as a deduction, as it has been paid before the due date for the filing of the return and so the benefit of the first proviso to section 43B has to be allowed in view of the decision of the apex court in the case of Allied Motors (P) Ltd, v. CIT : [1997]224ITR677(SC) . We agree with this contention also. The deduction for Rs. 44,987 may be allowed. Subject to these remarks, the ground is allowed.
12. The appeal is partly allowed.