1. This is a reference under s. 66(2) of the Indian I.T. Act, 1922, and the question referred to us by the Income-tax Appellate Tribunal is as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the two sums of Rs. 21,657 and Rs. 106 were allowable deductions as being of a revenue nature ?'
2. The facts lie within a narrow compass and may be briefly stated : The assessee is a public limited company, trading in motor cars and running service stations. We are concerned in this reference with the assessment year 1963-64, the corresponding previous year being the year ended 31st March, 1963. In that year, the assessee opened two branches, one at Worli and other at Dadar. At Worli, accommodation was taken under a lease, which was to enure for a period of ten years. At Dadar, premises were similarly taken, but the period of the lease was a shorter one, viz., five years. Out of the amount of Rs. 21,657 mentioned in the question, a sum of Rs. 13,104 was paid to the lawyers who drew up the lease agreements and Rs. 8,553 paid to a broker. Rs. 106 was claimed before the ITO as legal expenses for securing the industry Manor premises (at Worli). The ITO disallowed both the amounts on the basis that the payments related to procurement of premises on long lease and were, therefore, of a capital nature. In his view, there was an enduring benefit secured by the assessee by reason of this lease.
3. The assessee carried the matter in appeal, but the AAC also confirmed the disallowance on the same grounds as had found favour with the ITO.
4. The assessee then carried the matter in second appeal to the Income-tax Appellate Tribunal. On behalf of the assessee, it was submitted that the nature of the expenditure was the proper criterion to be considered and that no asset of an enduring benefit had been brought into existence as held by the ITO and confirmed by the AAC. The departmental representative relied on the fact that the leases were for five and ten years, respectively, and that fresh branches had been opened by the assessee at the two premises. The Tribunal held that the assessee's claim was well founded. In its view, the fact that the amounts had been spent in connection with the opening of new branches was by itself no justification for disallowance. Further, according to the Tribunal, no asset as such had been brought into existence inasmuch as the premises had only been taken on lease. The Tribunal was unable to accept the argument advanced on behalf of the revenue that the period of the lease was itself indicative of securing an asset of an enduring nature and the expenditure, therefore, was required to be disallowed as of a capital nature. In the opinion of the Tribunal, therefore, the expenditure was of a revenue nature and was liable to be allowed as a deduction.
5. It may be mentioned in passing that the Commissioner had applied under s. 66(1) for a reference to the High Court. By its order dated 7th April, 1967, the Tribunal had declined to refer the question to the High Court on the ground that the same had become to academic in view of the decision of the Supreme Court in Indian Cements Ltd. v. CIT : 60ITR52(SC) . Thereafter, the Commissioner applied to the High Court under s. 66(2) and the High Court required the Tribunal to submit the case. It is in pursuance of such a requisition that the statement of case has been submitted.
6. It appears to us that the facts arising in this reference are substantially similar to the facts which arose in CIT v. Hoechst Pharmaceuticals Ltd. : 113ITR877(Bom) . It is true that in Hoechst Pharmaceuticals Ltd.'s case, office premises had been acquired on lease for five years, and, according to Mr. Joshi, this constituted an important distinction between the facts involved in that decision and the facts involved in the present reference. Further, in Hoechst Pharmaceuticals Ltd.'s case the expenses were claimed by way of allowance as brokerage and stamp duty, whereas in the present reference we are concerned with the lawyer's fees, brokerage and legal expenses. It has been observed in Hoechst Pharmaceuticals Ltd.'s case : 113ITR877(Bom) that the period of lease which was of five years 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. It was mentioned further that the brokerage paid 'was really in the nature of remuneration paid in order to avail of the services of the broker with a view of acquire the premises on rent'. The five-year period was described in the said judgment as a relatively short period and, following the decision of the Supreme Court in India Cements Ltd.'s case : 60ITR52(SC) and the ratio spelt out therein, it was held in Hoechst Pharmaceuticals Ltd.'s case : 113ITR877(Bom) that the Tribunal had taken the correct view and allowed the expenditure as being expenditure of a revenue nature.
7. In our opinion, merely because the period of the lease of the industry Manor premises in the instant case is one of ten years, it does not constitute such a startling difference as would appeal to us to apply a different test than the one which we applied in Hoechst Pharmaceuticals Ltd.'s case : 113ITR877(Bom) . In our view, the expenses were rightly considered by the Tribunal as being of a revenue nature and on that footing deduction was rightly allowed. In this view of the matter, the question referred to us is answered in the affirmative and in favour of the assessee as regards both the amounts.
8. The parties, however, will bear their own costs of the reference.