Dipak Kumar Sen, J.
1. Gobind Sugar Mills Ltd., the assessee, had been carrying on business of running a sugar mill. Under a deed of lease executed on the 30th August, 1969, it obtained a lease of another sugar factory at Matihari in consideration of an annual rental of not less than Rs. 25 lakhs for a period of five years. For the execution of the said deed, the assessee had to incur some expenditure on account of stamp fees, registration charges, solicitor's fees, etc., which aggregated Rs. 54,824. In the assessment year 1971-72, the relevant previous year ending on the 30th June, 1970, the assessee in its assessment to income-tax claimed deduction of the said amount as a revenue expenditure incurred for the purpose of business. The ITO rejected the said claim on the ground that the same had been incurred for acquiring the right to run a factory on lease and, therefore, the expenditure was of a capital nature.
2. Being aggrieved, the assessee preferred an appeal. The AAC, following a decision of the Supreme Court in the case of India Cements Ltd. v. CIT : 60ITR52(SC) , held that the expenditure in question had been incurred by the assessee for the use of a property under a leasehold for a limited period of time and that such expenditure had been incurred to obtain the use of the premises and to facilitate the carrying on of the business of the assessee. The AAC, accordingly, upheld the contentions of the assessee.
3. The revenue preferred a further appeal before the Tribunal. It was contended in the appeal that an expenditure incurred for acquiring a right to run the said sugar mill for the said period of five years was definitely on capital account and that a capital asset in the form of the assessee's right to run and exploit the said factory for the said period had come into existence under the said lease. Accordingly, the expenditure incurred on that account was submitted to be in the nature of capital expenditure. The decision of the Supreme Court in the case of India Cements Ltd. : 60ITR52(SC) was sought to be distinguished on the ground that the expenditure in that case had been incurred for the purpose of obtaining a loan. An earlier decision of the Supreme Court in Assam Bengal Cement Co. Ltd. v. CIT : 27ITR34(SC) was cited for the proposition that the expenditure incurred for the initial outlay in the setting up of a business or a venture could not be said to be on revenue account.
4. It was contended on behalf of the assessee, on the other hand, that it was already running a sugar mill and, therefore, the said lease was entered into in the course of the assessee's existing business. It was contended further that the assessee did not acquire any enduring right under the said lease but was only given a right to run a factory for a period of five years. The decision of the Supreme Court in the case of India Cements Ltd. : 60ITR52(SC) was reiterated before the Tribunal. The Tribunal found as follows:
(a) Subsequent to the said lease of the factory at Matihari, the assessee had not acquired any other sugar factory for its business.
(b) The said expenditure of Rs. 54,824 was a sum spent once for all and was not a recurring payment.
(c) Therefore, the expenditure of the said sum of Rs. 54,824 stood on the same footing as payment of a premium and was an outright payment made for bringing into existence the document.
5. On the reasons as aforesaid, the Tribunal set aside the order of the AAC and upheld the order of the ITO holding that the sum of Rs. 54,824 spent was a capital expenditure.
6. On an application of the assessee under Section 256(1) of the I.T. Act, 1961, the Tribunal has drawn up a statement of case and has referred the following question for the opinion of this court as a question of law arising from its order:
'Whether the Income-tax Appellate Tribunal was justified in law in holding that law charges incurred for the purpose of execution of temporary lease for 5 years was a capital expenditure and not a revenue expenditure ?'
7. Mr. R. N. Bajoria, learned counsel for the assessee, contended before us at the hearing that the reasons on which the Tribunal had set aside the order of the AAC were patently erroneous. The fact that the assessee had not acquired subsequently any other sugar factory was of little relevance in determining whether the expenditure incurred for the purpose of obtaining the lease of the factory at Matihari was a revenue or a capital expenditure. Similarly, the Tribunal was clearly wrong in holding that the expenditure of the said sum for meeting the stamp duty, registration fees and solicitor's fees, could be equated with payment of a premium. The fact that the said amounts were spent once for all and that such expenditure was not recurring, were also not conclusive for the purpose of determining the nature of the expenditure.
8. According to Mr. Bajoria, the following facts found in the instant case determined the controversy in favour of the assessee. It was the admittedposition that the assessee was already carrying on business in sugar and running a factory. Therefore, the expenditure incurred was for an existing business. The assessee under the said deed of lease obtained mere user of the factory at Matihari for a limited period. This could not be said to be an advantage of an enduring nature which could be equated with a capital asset. Lastly, the expenditure in the instant case was not directly connected with the transaction. No part of the said sum in dispute had been paid to the lessor by the lessee. This was an expenditure which arose incidentally in the course of the assessee's business and in order to record lawfully a valid transaction already entered into between the two parties. In support of his contentions, Mr. Bajoria cited the following decisions :
CIT v. Hoechst Pharmaceutical Ltd. : 113ITR877(Bom) . The facts in this case were that the assessee incurred an expenditure for the purpose of acquiring office premises in New Delhi and in that connection had also paid some stamp duty. The question arose whether such payments were allowable deductions in computing the total income of the assessee in the relevant assessment year. The claim of the assessee was rejected by the ITO as also the AAC but upheld by the Tribunal. On a reference, it was contended before the Bombay High Court that the lease was for a period of only five years and, therefore, the expenditure incurred must be treated as having been incurred for the purpose of bringing into existence an asset or an advantage of an enduring character. The High Cour-t held that the period of the said lease being only five years could not be said to be of such duration that the assessee could be said to have acquired or brought into existence an advantage of an enduring character. The court noted that (a) the amount was paid by the assessee to a third party; (b) the premises were obtained with a view to carrying on the business activity of the assessee ; and (c) the stamp duty was required to be paid in order to bring about the document of the lease. Accordingly, the court held that the expenses incurred for obtaining the premises on lease for a short period of five years was allowable as a revenue expenditure. The court followed the decision of the Supreme Court in India Cements Ltd. : 60ITR52(SC) and noted that the ratio in the said judgment was that, where there was no express prohibition, an outgoing by means of which an assessee procured the use of a thing by which the assessee made a profit was deductible from the receipt of the business to ascertain the taxable income.
9. Mr. Bajoria next cited India Cements Ltd. : 60ITR52(SC) , for the said observation of the Supreme Court (at page 58 of the judgment) as follows :
'It will be remembered that there was no section like Section 10(2)(iii) of the Act in the English Income Tax Act. On the other hand, there were certain rules prohibiting the deduction in respect of ' any capital withdrawn from, or any sum employed or intended to be employed as capital in such trade.....' or 'any interest which might have been made if any such sums as aforesaid had been laid out at interest'. Lord Atkinson first held in that case that the express prohibitions did not apply to the facts of the case and then proceeded to discuss general principles. These observations show that where there is no express prohibition, an outgoing, by means of which an assessee procures the use of a thing by which it makes a profit, is deductible from the receipts of the business to ascertain taxable income. On the facts of this case, the money secured by the loan was the thing for the use of which this expenditure was made. In principle, apart from any statutory provisions, we see no distinction between interest in respect of a loan and an expenditure incurred for obtaining the loan.'
10. Mr. Prabir Majumdar, learned counsel for the revenue, has contended on the other hand that the law was well settled that a leasehold interest was a capital asset and, therefore, any expenditure incurred in obtaining a leasehold interest or any expenditure incurred in connection therewith must be held to be a capital expenditure. In support of his contentions, Mr, Majumdar cited the following decisions :
(a) East India Commercial Co. Private Ltd. v. CIT : 54ITR81(Cal) . The facts in this case were that the assessee had taken on lease a jute mill initially for a period of five years. On the expiry of the period, the assessee spent a sum of Rs. 4,680 towards stamp duty in respect of a lease deed for the purpose of renewing the earlier lease for a further period of five years. The lessor challenged the deed of renewal as invalid and ineffective and thereafter a fresh deed of lease was executed containing different terms and the assessee had to spend a further sum in respect thereof. On these facts, the Division Bench of this court held that the said sum of Rs. 4,680 paid towards stamp duty on the ineffective lease deed was in the nature of capital expenditure and was not allowable as a deduction in computing the assessee's income.
(b) CIT v. Bengal Assam Investors Ltd. : 72ITR319(Cal) . In this case, it was held by a Division Bench of this court that expenditure incurred by the assessee as legal expenses for making additions and alterations to the shareholding of the assessee was expenditure of a capital nature forming part of the actual cost of the asset to the assessee.
(c) Assam Bengal Cement Co. Ltd. v. CIT : 27ITR34(SC) . Here, the Supreme Court held that a sum of Rs. 5,000 paid by way of protection fee under a lease of a stone quarry and a further sum of Rs. 35,000 annually for five years, also paid as protection fee, were capital expenditure and were not deductible under Section 10(2)(xv) of the Act of 1922. The following observations of the Supreme Court (at page 47 of the report) were relied on :
'The consideration of Rs. 5,000 per annum was to be paid by the company to the lessor during the whole period of the lease and this advantage or benefit was to enure for the whole period of the lease. It was an enduring benefit for the benefit of the whole of the business of the company and came well within the test laid down by Viscount Cave. It was not a lump sum payment but was spread over the whole period of the lease and it could be urged that it was a recurring payment. The fact, however, that it was a recurring payment was immaterial, because one has got to look to the nature of the payment which in its turn was determined by the nature of the asset which the company had acquired. The asset which the company had acquired in consideration of this recurring payment was in the nature of a capital asset, the right to carry on its business unfettered by any competition from outsiders within the area. It was a protection acquired by the company for its business as a whole. It was not a part of the working of the business but went to appreciate the whole of the capital asset and make it more profit yielding. The expenditure made by the company in acquiring this advantage, which was certainly an enduring advantage, was thus of the nature of capital expenditure and was not an allowable deduction under Section 10(2)(xv) of the Income-tax Act.'
11. It appears to us that the decision of the Supreme Court in India Cements Ltd. : 60ITR52(SC) has little application in the facts before us. In that case, the Supreme Court proceeded on the basis that a loan obtained was not an asset or an advantage for the enduring benefit of the business of the assessee and further observations of the Supreme Court in its judgment have to be read in that context. In the instant case, no doubt the assessee had obtained the right of user of the factory at Matihari for a period of five years, but under the lease the assessee had also obtained something more. It had obtained a right of property under the Transfer of Property Act and in our view such an interest is a capital asset. This aspect of the matter was entirely overlooked by the Bombay High Court in Hoechst Pharmaceuticals Ltd. : 113ITR877(Bom) , where the court confined its attention only to the enduring nature of the advantage. If it is found that the assessee had incurred expenditure for a capital asset then no further enquiry whether the nature of the advantage derived therefrom was enduring or not, is called for.
12. We are unable to accept the contention of Mr. Bajoria, that when the assessee obtained the lease of the said factory at Matihari it was already running a sugar mill and that the further expenditure is referable to an existing business. It is nobody's case that the lease was necessary in order to facilitate the existing business of the assessee in its running the sugar mill. We also find little substance in the contention of Mr. Bajoria that the expenditure was not incurred directly for the lease but was an expenditure incidental to the lease and was paid to a third party and not to the lessor. What we are concerned with is the nature of the expenditure and not the recipient of the amount spent. The money may not have reached the pockets of the lessor but so far as the assessee is concerned it incurred the expenditure for the purpose of obtaining a capital asset. Without proper registration of the deed of lease the rights of the assessee could not be said to have been perfected under the Transfer of Property Act and the Indian Registration Act. It would at best be an inchoate right enforceable by the assessee by invoking the doctrine of part performance if the assessee had obtained possession of the property without the execution of the deed. However, we are not concerned with that aspect of the matter inasmuch as the assessee chose to register the deed and in fact incurred the expenditure.
13. For the reasons, as above, we answer the question referred in the affirmative and in favour of the revenue. There will be no order as to costs.
Bimal Chandra Basak, J.
14. I agree.