K.S. Paripoornan, J.
1. At the instance of an assessee to agricultural income-tax, the Kerala Agricultural Income-tax Appellate Tribunal, Additional Bench, Kottayam, in exercise of the powers vested in it under Section 60 of the Act, has referred the following question of law for the decision of this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 39,858 expended by the assessee for stamp duty and other registration expenses in respect of the lease deeds executed by the Government of Kerala in its favour is not an allowable revenue expenditure ?'
2. The respondent is the Revenue. We are concerned with the assessment year 1972-73. The assessee is a company fully owned by the Government of Kerala. It is engaged in the business of plantation. The land required for plantation activities carried on by the assessee-company is generally provided by the Government of Kerala on leasehold right. A proper lease agreement is executed between the assessee and the Government. During the accounting period relevant to the assessment year 1972-73, the assessee claimed a sum of Rs. 39,858 towards stamp duty and registration expenses incurred for the lease deeds executed by it. The assessing authority treated the expenditure as capital in nature and disallowed the claim for deduction. In appeal, the Appellate Assistant Commissioner, Kottayam, by order dated October 13, 1980, held thus ;
'The expenses relate to stamp duty, adjudication fee, registration fee, etc., in respect of lease deed covering lands leased to the appellant by the Government for planting. The expenditure is revenue in nature and will be allowed in full.'
3. Aggrieved by the aforesaid decision, the Revenue carried the matter in appeal before the Agricultural Income-tax Appellate Tribunal. The Appellate Tribunal held that the assessee obtained extensive area of land on lease arrangement for effecting rubber plantation and the minimum period of lease in these arrangements is stated to be ten years and above. It is clear that the respondent-assessee has acquired an enduring benefit of planting rubber trees and obtaining income therefrom on long-term lease arrangement .... the expenditure was of capital nature. . . . The disallowance of Rs. 39,858 made by the assessing authority, treating the same as capital expenditure, is sustained'. The appeal by the State was allowed. It is, thereafter, at the instance of the assessee that the question of law formulated hereinabove has been referred for the decision of this court.
4. We heard counsel for the applicant-assessee, Mr. Vellappally, and also counsel for the respondent-State, Senior Government Pleader, Mr. V. C. James.
5. Counsel for the assessee contended that the Appellate Tribunal was in error in solely relying upon the decision of the Allahabad High Court in United Commercial Corporation v. CIT : [1970]78ITR800(All) , which stressed the obtaining of enduring benefit as conclusive or decisive to hold that the expenditure is a capital expenditure. It was argued that, in the light of the recent decisions of the Supreme Court in Empire Jute Co. 's case : [1980]124ITR1(SC) , Associated Cement Companies Ltd.'s case : [1988]172ITR257(SC) and Alembic Chemical Works Co. Ltd.'s case : [1989]177ITR377(SC) , even if the expenditure is incurred for obtaining an advantage of enduring benefit, it may not be conclusive to hold that the expenditure is capital in nature. It was contended that, if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the business of the assessee to be carried on more efficiently or more profitably, it will only be a revenue expenditure. The question as to whether the outgoing is capital or not should be viewed from a practical and business point of view and since the expenditure is related to the carrying on or conduct of the business, it should be considered to be an integral part of the profit-earning process and not for acquisition of an asset or right of a permanent character. There is a distinction between profit-earning process and profit-earning machinery or apparatus which has been stressed in the above three decisions. Counsel also placed heavy reliance on a Bench decision of this court in Federal Bank Ltd. v. CIT : [1989]180ITR241(Ker) , where this court has taken the view, that too much emphasis on the concept of enduring benefit or advantage of enduring nature without effectively reckoning the new trends, needs and development of modern society and the requirements of trade or business in an overall and practical manner, is uncalled for. Reliance was placed on the decisions of the Bombay and Madras High Courts in Bombay Cycle and Motor Agency Ltd.'s case : [1979]118ITR42(Bom) , Cinceita Private Ltd.'s case : [1982]137ITR652(Bom) , Bank of India's case : [1987]168ITR731(Bom) , Richardson Hindustan Ltd.'s case [1988] 169 ITR 516 and Sri Krishna Tiles and Potteries Madras (P.) Ltd.'s case : [1988]173ITR311(Mad) to contend that the expenses incurred towards stamp duty, adjudication fee and registration fee in respect of lease deeds covering lands leased to the assessee by the Government for plantation should be treated as revenue expenditure.
6. On the other hand, counsel for the Revenue contended that, admittedly, the assessee has obtained an enduring benefit by obtaining the lease deeds and any expenses incurred in connection therewith should be treated as capital expenditure. Stress was laid on the following decisions: United Commercial Corporation's case [1970] 78 ITR 800 (All), Gobind Sugar Mills Ltd.'s case : [1979]117ITR747(Cal) and Hotel Rajmahal's case : [1985]152ITR218(KAR) . It was argued that the lease was obtained for a period of ten years or more and so, what is obtained is a benefit of an enduring nature which is the hallmark of a capital asset. Any expenditure in obtaining such capital asset should also bear the same colour and content and, in this view, the expenditure incurred towards stamp duty, registration charges, etc., should be held to be capital in nature.
7. On hearing the rival pleas, we are of the view that the three recent decisions of the Supreme Court, viz., Empire Jute Co. Ltd. v. CIT : [1980]124ITR1(SC) , CIT v. Associated Cement Companies Ltd. : [1988]172ITR257(SC) and Alembic Chemical Works Co. Ltd. v. CIT : [1989]177ITR377(SC) , have laid down pragmatic and practical tests to find out whether an expenditure is revenue or capital in nature. In the light of these three recent decisions of the Supreme Court, the approach made to the above question in various earlier decisions of the High Courts may not bear scrutiny. A broad understanding of the ratio of the three Supreme Court decisions would go to show that even in a case where expenditure is incurred for obtaining an advantage of enduring benefit, emphasis should be placed on the nature of the advantage in a commercial sense and if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably, while leaving the fixed capital untouched, the expenditure should be held to be on revenue account, even though the advantage may endure for an indefinite future. The test of 'enduring benefit' has been held to be not a decisive or conclusive test ; it cannot be applied blindly and mechanically. The question must be viewed in the larger context of business necessity or expediency. If the expenditure is so related to the carrying on or the conduct of the business, it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or of a right of a permanent character. It has also been held that there is a dichotomy between profit-earning process and profit-earning machinery or apparatus. These aspects have been highlighted in the Bench decision of this court in Federal Bank's case : [1989]180ITR241(Ker) .
8. The decision of the Bombay High Court in CIT v. Cinceita Pvt. Ltd. : [1982]137ITR652(Bom) points out that, even if the period of lease is 20 years with right of renewal, the expenses incurred for stamp charges, registration fee, etc., thereon will only be an expenditure to facilitate the business to be carried on more efficiently or more profitably and so, a revenue expenditure. The long period of the lease cannot be regarded as decisive to hold that the expenses incurred are capital in nature. The above approach is in accord with the broad guidelines indicated in the three recent decisions of the Supreme Court referred to above. The decision of the Bombay High Court in CIT v. Cinceita Pvt Ltd. : [1982]137ITR652(Bom) was followed in CIT v. Bank of India : [1987]168ITR731(Bom) and Richardson Hindustan Ltd. v. CIT [1988] 169 ITR 516. The said decision was followed by the Madras High Court in Sri Krishna Tiles and Potteries Madras (P.) Ltd. v. CIT : [1988]173ITR311(Mad) . The Madras High Court followed the decision of the Bombay High Court in CIT v. Cinceita Pvt. Ltd. : [1982]137ITR652(Bom) in preference to the decisions of the Calcutta High Court in Gobind Sugar Mills Ltd. v. CIT : [1979]117ITR747(Cal) and of the Karnataka High Court in Hotel Rajmahal v. CIT : [1985]152ITR218(KAR) . The Allahabad, Calcutta and Karnataka High Courts, while rendering the decisions in United Commercial Corporation v. CIT : [1970]78ITR800(All) , Gobind Sugar Mills Ltd. v. CIT : [1979]117ITR747(Cal) and Hotel Rajmahal v. CIT : [1985]152ITR218(KAR) , had not the advantage of the liberal and pragmatic approach made by the Supreme Court in the three recent decisions which we have referred to above. We concur with the decisions of the Bombay and Madras High Courts referred to above. We respectfully dissent from the decisions of the Allahabad, Calcutta and Karnataka High Courts in United Commercial Corporation v. CIT : [1970]78ITR800(All) , Gobind Sugar Mitts Ltd, v. CIT : [1979]117ITR747(Cal) and Hotel Rajmahal v. CIT : [1985]152ITR218(KAR) . In our view, they are not in accord with the test and guidelines indicated by the Supreme Court in the three recent decisions referred to above.
9. We hold that the Appellate Tribunal has over-emphasised the fact that the assessee had acquired an enduring benefit of planting rubber trees by obtaining long-term lease arrangements and so, the expense incurred relating to stamp duty, adjudication fee, registration fee, etc., in respect of lease deeds covering the lands leased to the assessee by the Government is a capital expenditure. Following the decisions of the Bombay and Madras High Courts referred to above, we hold that the expenditure incurred by the assessee is a revenue expenditure. We, accordingly, answer the question referred to this court in the negative, in favour of the assessee and against the Revenue.
10. A copy of this judgment, under the seal of this court and the signature of the Registrar, shall be forwarded to the Agricultural Income-tax Appellate Tribunal, Additional Bench, Kottayam, forthwith.