1.This appeal by the assessee is directed against the order of the Commissioner (Appeals) relating to the assessment year 1980-81.
2. The first ground of appeal is that the Commissioner (Appeals) has erred in restricting the disallowance to the extent of Rs. 1,14,415 representing difference between lease money of Rs. 1,26,415 paid to six parties for the period 1-11-1974 to 31-3-1980 and Rs. 12,000 pertaining to the financial year 1979-80 allowed by the Commissioner (Appeals).
The facts briefly stated are that the assessee-company agreed to take certain lands at Ferozepur Road on lease from six persons with effect from 1-11-1974 as per lease agreement dated 14-10-1974 The lease was intended to be for a period of 99 years and even more but the period initially fixed and agreed to was only of five years with effect from 1-11-1974. As per Clause 3 of the lease agreement, the monthly rent fixed was Rs. 1,000, it was to be paid on or before 15th day of every month following. The assessee-company did not pay the rent up to 1979 when the lessors went to the Court and by a compromise decree dated 13-11-1979, the assessee-company admitted the claim of the plaintiffs and did not object to the passing of the decree by the Court. The assessee claimed deduction of Rs. 1,26,415 on this account while computing the income for the assessment year 1980-81. The claim was made for this assessment year on the plea that the claim crystallised only in the accounting period relevant to the assessment year 1980-81.
As per lease deed, the assessee had selected the said leasehold plots for the establishment of marketing centre, shops, hotel, banking corner and a cinema. As earlier pointed out, the lease was for an initial period of five years. The lease rent fixed was Rs. 1,000 per month. We have already pointed out earlier the dates by which the monthly rents were to be paid. It is also mentioned in Clause 2 of the said agreement that no rent shall be paid till the 'malba', etc., is removed. It is also stated in Clause 3 of the lease agreement that the lessors had no right to terminate the lease during the period of five years and the lessees shall not be disturbed and the rent shall remain payable for the said period of lease and in case of failure of the assessee to pay the monthly rents regularly, the lessors may recover the rent in arrears with damages by process of law from the lessees. The assessee-company had also deposited with the lessors sums aggregating to Rs. 72,000 (Rs. 12,000 each) as a security and guarantee for abiding by the terms and conditions of the lease agreement. It is reflected in Clause 5 of the lease agreement. As per the later part of Clause 5, the aforesaid amount shall stand forfeited if the rent due was not regularly paid and remained in arrears for more than one year. The ITO disallowed the claim holding that expenditure was of capital nature because it was for purposes of acquiring and constructing new assets.
Further, the expenditure did not relate to the accounting period relevant to the assessment year under appeal and, therefore, on both the counts it was not admissible. The claim of the assessee for deduction was, therefore, rejected by the ITO. The proposed disallowance by the ITO was also approved by the IAC in proceedings under Section 144B of the Income-tax Act, 1961.
3. Aggrieved, the assessee went in appeal before the Commissioner (Appeals). He observed that he agreed with the assessee's contention that the lease rent only pertaining to the assessment year under consideration, i.e., Rs. 12,000 would be allowable against the income for the year under consideration. He further held that there was absolutely no dispute between the assessee-company and the lessors regarding the rate of lease rent payable and the only dispute that arose later was regarding the payment of stamp duty and registration charges. Since the matter was ultimately settled by a compromise decree dated 30-11-1979 and the amount of lease rent payable was an ascertained liability from the beginning, he held that the lease rent pertaining to the accounting period prior to the previous year for the assessment year under appeal will not be allowable as a deduction. He, thus, allowed deduction of Rs. 12,000 and disallowed the balance of Rs. 1,14,415.
.4. The assessee is aggrieved and is in second appeal before the Tribunal. The learned counsel for the assessee at the outset was asked by the Bench to file copies of the lease agreement and the compromise decree along with the plaint. While copy of the lease agreement in the case of one of the lessors has been filed, the copies of the plaint and the compromise decrees have not been filed. He was also asked by the Bench to indicate as to whether the possession of the lands was given to the assessee-company. He could not furnish this information. He looked into the lease deed and could not find therefrom to show that the possession of the lands was given to the assessee-company. There is no evidence on record to show whether the lessors had removed 'malba' from the leased lands and when the possession was actually handed over.
The learned counsel for the assessee, however, admitted that the work regarding the establishment of marketing centre, shops, hotel, banking corner and a cinema had not commenced. He, however, contended that the expenditure on lease rent was of revenue nature and, therefore, it should have been allowed by the Commissioner (Appeals). He relied on certain judicial authorities which have been discussed in the orders of the authorities below.
5. Shri R.K. Bali, the learned senior departmental representative, on the other hand, contended that the order of the Commissioner (Appeals) is erroneous even for allowing deduction of Rs. 12,000 for the assessment year under appeal. At this stage, the learned counsel for the assessee intervened to say that the department was not in appeal and, therefore, it was not open to the department to agitate this issue now. The learned departmental representative then pointed out that even though the department was not in appeal, the revenue was entitled to support the order of the Commissioner (Appeals) for different reasons.
While he supported the order of the Commissioner (Appeals) for not admitting the claim of Rs. 1,14,415 he further contended that the expenditure was of capital nature inasmuch as neither there was any evidence of possession of leased lands having been given to the assessee nor even of the commencement of the work of establishing of marketing centre, etc., for which the lands were taken on lease. He also relied on the decisions of the Supreme Court in Assam Bengal Cement Co. Ltd. v. CIT  27 ITR 34 and K.T.M.T.M. Abdul Kayoom v.CIT  44 ITR 689 and contended that staggering payment of lease money was capital expenditure. He also relied on the decision of the Kerala High Court in Sundaram Finance Ltd. v. Regional Transport Officer  117 ITR 334. He also urged that the compromise decree dated 30-11-1979 was collusive. There was no evidence that there was any dispute between the lessors and the lessees. The plaints were filed on 5-11-1979 and compromise decree was awarded on 30-11-1979, i.e., within a period of one month. He urged that the decree was collusive and not binding on the department. In this connect Jon he referred to the judgment of the Supreme Court in the case of Kale v. Dy. Director of Consolidation AIR 6. We have given our careful consideration to the rival submissions. We have also referred to the relevant provisions of the lease agreement, a copy of which has been filed in the paper book by one of the six lessors. We are in agreement with the Commissioner (Appeals) that there was no dispute about the lease money in the earlier years. We are also in agreement with the learned departmental representative that the compromise decree is a collusive one and, therefore, it is not binding on the revenue in view of the judgment of the Hon'ble Supreme Court referred to above. Clause 5 of the lease agreement provided that in case the rent was not paid regularly for one year, the security amounts of Rs. 72,000 paid by the assessee-company to the lessors, shall stand forfeited. While making the claim, no set off for such forfeiture has been made on behalf of the assessee which clearly shows that the decree obtained from the Court is collusive one. We have already noted above that a copy of the plaint and the compromise decree has not been filed in the paper book. We, therefore, do not want to comment further in the absence of these documents. It is an admitted fact, as conceded by the learned counsel for the assessee, that no work as contemplated in the lease agreement had commenced not to speak of completion thereof. Even the possession of the lands to the assessee-company is not established in the absence of any documentary evidence to this effect. The lease rent till the period mentioned in the lease agreement will be capital in nature as the same is for acquiring capital assets. Even on this account, the claim could not be allowed. In our opinion, the Commissioner (Appeals) has wrongly allowed partial claim of Rs. 12,000.
Since the revenue is not in appeal against this allowance by the Commissioner (Appeals), we decline to interfere further with the same.
For the reasons given above we confirm the order of the Commissioner (Appeals) in not allowing the claim of Rs. 1,14,415.
7 to 12. [These paras are not reproduced here as they involve minor issues.]