Himachal Pradesh H.C : 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

High Court Of Himachal Pradesh

CIT vs. Gopal Associates

Section 37(1)

Asst. Year 1994-95

Deepak Gupta & V.K. Ahuja, JJ.

IT Appeal No. 9 of 2002

12th August, 2008

Counsel appeared :

Vinay Kuthiala & Ms. Vandana Kuthiala, for the Appellant : None, for the Respondent

JUDGMENT

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 Tribunal 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 asst. yr. 1994-95 the assessee took on lease a fruit processing plant from the HPMC. The lease deed was executed on 27th Dec., 1993, for a period of 7 years. It is not disputed that in fact the lease deed was terminated w.e.f. 17th March, 1994. The assessee had spent a sum of Rs. 3,44,251 as stamp duty and registration charges on the lease deed. The AO treated this expenditure as capital expenditure by relying upon the judgment of the Karnataka High Court reported in the case Hotel Rajmahal vs. CIT (1984) 42 CTR (Kar) 105 : (1985) 152 ITR 218 (Kar). On the other hand, the assessee relying upon the judgments of the Madras, Kerala and Gujarat High Courts reported in Sri Krishna Tiles & Potteries Madras (P) Ltd. vs. CIT (1988) 69 CTR (Mad) 135 : (1988) 173 ITR 311 (Mad), Plantation Corporation of Kerala Ltd. vs. Commr. of Agrl. IT (1994) 117 CTR (Ker) 174 : (1994) 205 ITR 364 (Ker) and Gujarat Machinery Manufacturing Ltd. vs. CIT (1995) 126 CTR (Guj) 308 : (1995) 211 ITR 1010 (Guj), 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 matter in detail but held that when for the first time the assessee enters a lease deed securing leaseholding rights for a long period, the expenditure incurred on stamp duty, registration and legal fees, etc. should be treated as expenditure of capital nature. However, the Madras High Court in Sri Krishna Tiles & Potteries Madras (P) Ltd. case (supra) followed the law laid down by the Bombay High Court in CIT vs. Cinceita (P) Ltd. (1982) 28 CTR (Bom) 250 : (1982) 137 ITR 652 (Bom) and disagreed with the decision of the Karnataka High Court. It was held that irrespective of whether the incidental expenditure is incurred in or connection with or related to capital expenditure the same has to be treated as revenue expenditure. The Kerala High Court also took this view in 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.

[Citation : 326 ITR 413]