1. This is a reference under s. 256(1) of the I.T. Act, 1961 (referred to hereinafter as 'the said Act'). The relevant assessment year is 1968-69 for which the corresponding previous year was the year ending 30th June, 1967. The assessee took on lease the entire third floor of a building known as 'Apte property Trust Building' at a monthly rent of Rs. 3,500. The agreement to lease was executed on 23rd June, 1964, whereas the deed of lease was execute on 2nd May, 1967. The lease was for an initial period of 20 years with an option for renewal granted to the lessee at a higher rent, as can be seen from cl. 5 of the lease deed dated 2nd May, 1967. It is common ground that the lease of the said premises was taken for the use thereof as business premises. For the relevant assessment year the assessee claimed an expenditure of Rs. 10,700 as expenditure incurred by way of registration fee, stamp duty and solicitors' fees in connection with the drawing up of the said deed of lease. In fact, it can be seen that out of the said amount the largest portion, viz., of Rs. 9,450, represents the amount given by a cheque to the solicitors for stamp duty in connection with the indenture of lease. The ITO is allowed this expenditure as a revenue expenditure on the ground that it had been incurred by the assessee for acquiring a benefit of an enduring nature and hence was a payment of capital nature. The AAC upheld the decision of the ITO. The assessee preferred an appeal against the decision of the AAC to the Income-tax Appellate Tribunal. The Tribunal allowed the said appeal holding, inter alia, that what the assessee had secured for itself was the use of the leasehold property, and that it was not for acquiring that right that it had incurred the said expenditure. The Tribunal held that the expenditure was incurred to meet certain expenses which the assessee had necessarily to incur in order to conform to the legal deed of lease. The expenditure was incurred for drawing up and registering a valid deed of lease not suffering from legal infirmities. It was held by the Tribunal that the expenditure was laid out to facilitate the carrying on the business of the assessee and hence was allowable as a revenue deduction. It is from this decision of the Tribunal that the following question has been referred to us for determination :
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 10,700 in question was a capital or a revenue expenditure ?'
2. Under sub-s. (1) of s. 37 of the said Act deduction is allowed in respect of any expenditure, not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expense wholly and exclusively for the purposes of the business or profession of the assessee. This provision is in pari materia with a similar provision contained in s. 10(2)(xv) of the Indian I.T. Act, 1922.
3. In CIT v. Hoechst Pharmaceuticals Ltd. : 113ITR877(Bom) , it was held by a Division Bench of this court that expenses incurred by way of brokerage and stamp duty for acquiring office premises on lease for a short period of five years are allowable deductions in computing the total income of the assessee, since the period of the lease could not be said to be such a long period that the assessee could be said to have acquired or brought into existence an advantage of an enduring character. This decision was followed by this court in CIT v. Bombay Cycle & Motor Agency Ltd. : 118ITR42(Bom) , where one of the lease in question was for a period of 10 years an the other for a period of five years. In that case, the Tribunal had taken the view that the fact that the amounts had been spent in connection with the opening of new branches was by itself no justification for disallowance, that no asset of an enduring nature had been brought into existence, and that the period of the lease by itself was not indicative of securing an asset of an enduring nature and that the expenditure could not be disallowed as of a capital nature. This reasoning of the Tribunal was upheld by the Division Bench of this court, which decided the said case.
4. It is in the light of these decisions that we shall have to approach the case before us. In the case before us, it is true that the period of the lease is for 20 years and there is an option for renewal, but at a higher rent. At the same time it must also be noticed that the expenditure in respect of stamp duty, registration charges and professional fees paid to the solicitors, who prepared and got registered the deed of lease. There is no element of premium in the amount claimed as expenditure. Moreover, this expenditure would have been the same even if the lease had been of a shorter duration provided the period of lease was more than one year.
5. In these circumstances, we fail to see why merely because the period of lease is a little longer than in the case of CIT v. Bombay Cycle & Motor Agency Ltd. : 118ITR42(Bom) , we should take a different view of the matter. Had the amount claimed included any amount claimed to have been paid by way of premium for acquiring the leasehold premises, we might have well taken a different view. As held in CIT v. Bombay Cycle & Motor Agency Ltd. : 118ITR42(Bom) , the period of the lease could not be regarded as decisive of the circumstance as to whether the asset or advantage secured is on an enduring nature.
6. In the result, we answer the question referred to us as follows :
The sum of Rs. 10,700 in question was in the nature of revenue expenditure.
7. It is clarified that the reference is decided in favour of the assessee.
8. The Commissioner to pay the costs of the reference.