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Arijit Pasayat CJ of the Delhi High Court in Bharat Steel Tubes Ltd. (119TAX6) held that commission or brokerage paid for renting premises would be capital in nature. The High Court held that such sum would be similar to a premium or salami paid under any leasing arrangement, which is capital in nature. In defining the word Premium (Salami) the High Court explained that it is a single payment made for the acquisition by the lessee of the right to enjoy the benefits granted to him by the lease. Money paid to purchase the said general right is a payment on capital account.

Due to recent promotion of building infrastructure in the country these days’ large amounts are exchanged as commission and those would henceforth receive adverse tax treatment in view of this decision. Such decisions actually lead to influx of black money and it is better that suitable laws are framed keeping in mind the real life situation and considering the volume of business transacted. The decision is rendered in the context of A.Y. 1970-71 when property lease may have assumed a very small volume of business. It would therefore be desirable for the government to bring out an appropriate legislation to provide an assurance that such sums paid would be allowable as legitimate business expenditure. In the meantime officers in the department may be suitably instructed in this regard.

Also in this context it would be relevant to note the Bombay High Court decision in the case of Commissioner of Income-tax Vs. Khandelwal Mining and Ores P. Ltd. (140ITR701). In this case the assessee lesser paid Rs. 45,000 paid as brokerage and claimed that the same should be allowed to be deducted from its business income as the said expenditure was wholly and exclusively incurred for the purpose of the business of the assessee. The High Court held that when the assessee entered into a contract of lease it was not acquiring any new source of income and that the contract of lease did not create any new asset for the acquisition of which the amount of Rs.45000 was spent by the assessee. Therefore, the expenditure can be said to be laid out or expended wholly and exclusively for the purpose of earning the income in the form of rent. Also in this case the Court in the context of stamp duty claim held that the lease being for a long period of time had to be by a registered document and payment of stamp duty was a statutory necessity.

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