DIVAN C.J. - In this case at the instance of the revenue, the following questions has been referred to us :
'Whether, on the facts and in the circumstances of the case, the lease rent of Rs. 12,600 for each of the two years was admissible deduction under section 37 of the Income-tax Act, 1961 as business expenditure ?'
We are concerned in the instant case with the assessment years 1971-72 and 1972-73, the previous years being financial years 1970-71 and 1971-72. The assessee is a registered partnership firm and carries on the business of giving on hire, loud speakers, film projector, stage lighting, cine-photography and repairing of electronic equipments, radio sets, etc. The office of the firm was situated at Sankdi Naka, Ahmedabad, since last 30 years and the area available was 180 sq. ft. The assessee, therefore, took on lease land at Relief Road, Ahmedabad. The land was taken on lease on April 1, 1970, and the assessee started construction of the show-room and office building on the area admeasuring 1,470 sq. ft. The construction work was started in May, 1970, and it was completed in march, 1973. The assessee claimed to have started the use of this new office and the show-room at Relief road, and continued the use of the old office at Sankdi Sheri Naka also. During the previous year ended march 31, 1971, the assessee claimed payment a sum of Rs. 12,600 as lease rent for the period April 1, 1970, to March 31, 1971, and claimed deduction of the same as business expenditure. The ITO allowed the expenditure as business expenditure while computing the total income from business for the assessment year in question.
On examining the records of the proceedings for the assessment year in question, it was by the Commissioner that the allowance of Rs. 12,600 as a business expenditure was an inadmissible deduction and the order of the ITO was prejudicial to the interest of the revenue. Therefore, suo motu action under s. 263 of the Act was taken and notice was issued to the assessee. Relying on the decisions in the case of IRC v. Falkrik Iron Co. Ltd.  17 TC 625, the assessee contended that the amount claimed was a permissible deduction under s. 37 of the Act. The Commissioner held that the case relied upon by the assessee was of a foreign court and the facts in that case were not precisely similar to the facts in the case of the assessee, as the assessee had taken land on lease which was not put to use for the purpose of business in the previous year in question and had merely started construction on the said land for a show room and office with a view to expand it business which the assessee carried on in a small place in another part of the city. The new construction of the office and show-room was completed after two years from the end of the previous year in question and, therefore, the impunged expenditure could not be said to be incurred wholly and exclusively for the purposes of the business. The Commissioner held that the deduction granted by the ITO was erroneous and he set aside the order of the ITO and directed him to recompute the income of the assessee after disallowance of the impunged expenditure.
Against the decision of the Commissioner the assessee filed an appeal before the Income-tax Appellate Tribunal and again relied on the judgment in IRC v. Falkirk Iron Co. Ltd.  17 TC 625 and reliance was also placed on a decision of the Supreme Court in the Case of CIT v. Malyalam Plantations Ltd. : 53ITR140(SC) . The Tribunal observed that the payment of the lease rent was not in respect of a new asset being acquired by the assessee but it was the lease rent paid in order to keep the business in proper running. The tribunal further observed that even if a building was not put to use, the rent would be a permissible deduction under s. 37 of the Act is such building was acquired for the purpose of business. The Tribunal held that the action of the ITO in permitting the deduction was perfectly justified and the Commissioner was not correct in withdrawing such allowance under s. 263. Hence, the Tribunal allowed the appeal of the assessee and set aside the order of the Commissioner.
For the assessment year 1972-73 the facts are identical. The same amount of Rs. 12,600 paid by the assessee as lease rent during this year was claimed as deduction, but in this year the ITO disallowed the claim of the assessee. This order of the ITO was confirmed by the AAC in appeal for the reasons recorded in its order in the case of the same assessee for the assessment year 1971-72, the Tribunal allowed the appeal of the assessee and held that the amount of Rs. 12,600 was a permissible deduction. Thereafter, at the instance of the revenue, the question set out hereinabove has been referred to us for our opinion, in respect of the two assessment years under consideration.
It must be borne in mind that the amount of Rs. 12,600 was not premium which was paid for acquiring the plot of land in question. What was paid was periodical rent which was being paid from time to time and the aggregate amount of rent for the entire year under consideration came to Rs. 12,600. Therefore, the sole question that arises is whether, in the facts as found by the Tribunal, this would be an expenditure wholly and exclusively for the purpose for the business of the assessee.
A Division Bench of this Court in CIT v. Alembic Glass Industrial Ltd., in Income-tax Reference No. 58 of 1971, decided on 17-7-1972 (to be found at page 1 of Direct Tax Laws-unreported judgments of Gujarat High Court (1960-74) published by Chartered Accountants Association, Ahmedabad) has held :
'It is well settled that the expression for the purposes of the business is a word of wide import-it takes in not only the day-to-day running of a business but also other activities incidental to the carrying on of a business. Any payment made by an assessee in his character as a trader, not out of necessity and with a view to a direct and immediate benefit to the trade but voluntarily and on the grounds of commercial expendiency and in order indirectly to facilate the carrying on of his business, would be comprehended within the meaning of the said expression. The mere fact that the expenditure so laid out may not turn out profitable at all at any time or that it may to some extent ensure for the benefit of a third party cannot alter the essential character of the expenditure, so as to defeat the assessees claim for allowance of such expenditure on the footing that it was incurred wholly and exclusively for the purposes of his business.'
In the instant case, the expenditure of Rs. 12,600 in each of the years under consideration was for the purpose of taking on lease the land on which the assessee wanted to put up its show-room and office building. The construction work was started in the month of May, 1970, and it was completed in the month of March, 1973. Necessarily the assessee had to pay the rent to the owner of the plot of land from time to time. This land was taken on rent for the purpose of business of the assessee and the object of the assessee was to put up a show-room and office building on the land in question. Under these circumstances, it cannot be gainsaid that though the land was not immediately put to use in the two years under consideration, the amount of Rs. 12,600 spent in each of the two years under reference was for the purpose of the business of the assessee. It was spent wholly and exclusively for the purpose of the business of the assessee so that the assessee could ultimately have large office premises where its business could be carried on in a better manner and more efficiently. Over a period of years the assessee was occupying a small office admeasuring 180 sq. ft. The assessee was now getting much larger space admeasuring 1,470 sq. ft. Hence, it cannot be said that this expenditure was not wholly and exclusively incurred for the purpose of the business of the assessee. In view of this conclusion it is obvious that the order of the Tribunal was correct. We, therefore, answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the revenue. The commissioner will pay the costs of this reference to the assessee.