Ranganathan, J.:— This is a reference at the request of the Commissioner of Income-tax by the Income-tax Appellate Tribunal. The respondent-assessee is New Garage Ltd., which is now under winding up. The reference relates to the assessment year 1962-63.
2. The assessee is a limited company. The business of the assessee during the previous year relevant to the assessment year 1962-63 was that of repairing vehicles, selling tractors, implements and spares purchased from M/s. Escorts Ltd. For the purpose of this business, the assessee-company maintained a show-room at No. 11, Scindia House, New Delhi.
3. Sometime in the year 1961, the subscribed capital of the company was raised from Rs. 1 lakh to-Rs. 2 lakhs. All the newly issued shares were purchased by what has been described as the Escorts group, and the Escorts group thus came to have a controlling interest in the assessee-company.
4. The landord of the above premises filed a suit against the assessee-company for eviction. Subsequently, the suit was compromised and the assessee agreed to pay a sum of Rs. 10,000. While completing the assessment for 1962-63, the ITO refused to give the assessee a deduction of the sum of Rs. 10,000 on the ground that it had not been paid for any legitimate business needs of the company. On appeal, the AAC took the view that the amount was inadmissible as it was of capital nature. However, on further appeal by the assessee, the Tribunal pointed out that in the present case there had been no change in the company itself, though there had been a change in the shareholding. The assessee-company was and continued to be the tenant of the premises and the tenancy rights which were very valuable were in jeopardy when the landlord filed an eviction suit. The assessee was merely protecting the danger to its capital assets in the shape of tenancy rights. The amount was thus spent to maintain the existing capital assets.
5. The Tribunal pointed out that the case would have been substantially different if the assessee had paid Rs. 10,000 to acquire a new lease. In that case, the amount would have been a capital expenditure. But, in the present case, what turned the scales in favour of the assessee was the fact that it was an old tenant which continued the tenancy. The Tribunal, therefore, held that the assessee was entitled to the deduction of the sum of Rs. 10,000 in computing its business income.
6. The following question has been referred to this court for its opinion.
“Whether, on the facts and in the circumstances, the Tribunal was right in law in holding that the sum of Rs. 10,000 was a business expenditure of revenue nature entitled to deduction in computing the total income of the asssssee-company?”
7. We are in full agreement with the view taken by the Tribunal. As pointed out by it, the assessee-company was the tenant of the premises in question. The tenancy rights were very valuable rights and what all the company did was to defend and protect the existing rights. As a result of the expenditure, the assessee-company did not acquire any asset or enduring advantage. The principles in this respect are too well settled to require repetition. Suffice it to say that we agree with the view of the Tribunal and answer the question referred to us in the affirmative and in favour of the assessee. The assessee will be entitled to its costs. Counsel's fee Rs. 250.