COMMR.INCOME TAX vs. MS GOPAL ASSOCIATE

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ITA/9/2002HC Himachal PradeshHPHC01004177200212 August 2008Author: HONOURABLE MR. JUSTICE DEEPAK GUPTA,HONOURABLE MR. JUSTICE V.K. AHUJA3 pages

AI SummaryDismissed

What did the High Court hold?

The High Court followed the reasoning of the Bombay High Court in CIT vs. Cinceita (P.) Ltd., and the decisions of the Madras, Kerala, and Gujarat High Courts, which held that expenditure on stamp duty and registration charges for a lease deed is revenue expenditure, irrespective of whether it is incidental to capital expenditure. The Court respectfully disagreed with the Karnataka High Court's view in Hotel Rajmahal's case, which treated such expenditure as capital in nature when securing leaseholding rights for a long period. The substantial question of law was answered against the revenue. The appeal filed by the Revenue was dismissed. No order as to costs.

What were the facts?

For the assessment year 1994-95, the assessee, M/s. Gopal Associates, took a Fruit Processing Plant on lease from HPMC for a period of seven years. The lease deed was executed on December 27, 1993, but was terminated effective March 17, 1994. The assessee incurred Rs. 3,44,251/- on stamp duty and registration charges for this lease deed. The Assessing Officer (AO) treated this expenditure as capital in nature, citing the Karnataka High Court's decision in Hotel Rajmahal vs. CIT. The assessee contended it was revenue expenditure, relying on decisions from the Madras, Kerala, and Gujarat High Courts. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) ruled in favor of the assessee. The Revenue (Commissioner of Income Tax) has filed this appeal before the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that the expenditure incurred on stamp duty and registration charges at the time of execution of a lease agreement for taking on lease a Fruit Processing Plant for seven years was allowable as revenue expenditure. Assessee's contentions: - The amount spent on stamp duty and registration charges should be treated as revenue expenditure. - Relied on judgments from the Madras High Court in Sri Krishna Tiles and Potteries Madras (P.) Ltd. vs. CIT, Kerala High Court in Plantation Corporation of Kerala Ltd. vs. CIT (Agricultural Income-Tax), and Gujarat High Court in Gujarat Machinery Mfg.Ltd. vs. CIT. Revenue's contentions: - The expenditure incurred on stamp duty and registration charges was capital in nature. - Relied on the judgment of the Karnataka High Court in Hotel Rajmahal vs. CIT.

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA

ITA No.9 of 2002

Judgment reserved on: 8.8.2008. Date of decision:12.8.2008

Commissioner of Income Tax

..Appellant

Versus

M/s.Gopal Associates

..Respondent

Coram The Hon’ble Mr. Justice Deepak Gupta, Judge. The Hon’ble Mr. Justice V.K.Ahuja, Judge. Whether approved for reporting?1 No For the Appellant.:

Mr.Vinay Kuthiala and Ms.Vandana Kuthiala, Advocates

For the Respondent:

None.

Deepak Gupta, J.

This appeal was admitted on the following substantial question of law:

“1.Whether on the facts and in the circumstances of the case, the ITAT was right in law holding that the expenditure incurred on stamp duty and registration charges at the time of execution of lease agreement for taking on lease the Fruit Processing Plant for seven years, was allowable as revenue expenditure.”

The brief facts necessary for decision of the case are that during the assessment year 1994-95 the assessee took on lease a Fruit Processing Plant from the HPMC. The lease deed was executed on 27.12.1993 for a period of 7 years. It is not disputed that in fact the lease deed was terminated w.e.f. 17.3.1994. The assessee had 1 Whether the reporters of the local papers may be allowed to see the Judgment?

2 spent a sum of Rs.3,44,251/- as stamp duty and of Income-Tax, 152 ITR 218. On the other hand, the of Income-Tax, 173 ITR 311, Plantation Corporation Income-Tax, 205 ITR 364 and Gujarat Machinery Mfg.Ltd. vs. Commissioner of Income-tax, 211 ITR 1010, contends that the amount spent as stamp duty and registration charges should be treated as revenue expenditure. The CIT(A) and Tribunal accepted the plea of the assessee. The Revenue has filed the present appeal challenging the order of the learned Tribunal.

The Karnataka High Court in Hotel Rajmahal’s case (supra) did not really discuss the Plantation Corporation’s case (supra). The Gujarat High Court in Gujarat Machinery’s case (supra) dealt with the same question and held that the amount spent on registration and stamp charges is revenue expenditure.

No other judgment has been pointed out to us.

We follow the reasoning given by the Bombay, Madras, Kerala and Gujarat High Courts and respectfully disagree with the judgment of the Karnataka High Court.

In view of the above discussion, the substantial question is answered against the revenue and the appeal is dismissed. No order as to costs.

( Deepak Gupta ), J.

August 12, 2008 ( V. K. Ahuja ), J.

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