JUDGMENT
R.N. Misra, J.
1. The Income-tax Appellate Tribunal has stated a case arid referred the following question under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), for the opinion of the court pursuant to a direction given by the court:
“Whether, on the facts and in the circumstances of the case, the claim of the assessee in respect of Rs. 16,499 on the head of expenditure was of revenue character and, therefore, admissible or was of capital nature and, therefore, not to be allowed ? ”
2. The year of assessment is 1965-66. The assessee was engaged in the business of exhibiting cinematograph films. It laid claim for deduction on two counts, namely, (i) repairs and replacements to the tune of Rs. 27,158, and (ii) directors’ remuneration of Rs. 24,000. For the purposes of cinema exhibiting business, the assessee had engaged an exhibition hall. According to the assessee Rs. 18,659 were spent on furniture and machinery account and the remainder out of Rs. 27,158 went for improvement of the cinema building. All the claims were rejected. The claim with regard to the remuneration of directors has become final and need not be discussed. Similarly, rejection of Rs. 18,659 which represented expenditure on furniture and machinery account is also no more in dispute. The deductibility of about Rs. 17,000 which represented expenditure for improvement of the cinema hall is now to be considered. There is no dispute that if the expenditure is of revenue character it would be admissible as a deduction and if it is in the nature of capital expenditure no deduction would be permissible.
3. Improvements in respect of the cinema hall would ordinarily be of abiding interest and an expenditure on such head would not be revenue expenditure. Mr, Pasayat for the assessee claimed that the burden to establish that the investment was of a permanent nature partaking the character of a capital investment should have been, established by the revenue. It is the assessee’s case that the expenditure was incurred for improving the cinema hall. It is difficult to accept the contention of Mr. Pasayat that when the expenditure was for improvement of the cinema hail it could be taken to be a revenue expenditure. Undoubtedly, the improvement was of a permanent character and enhanced the asset. The asset–the cinema hall–however, was not the property of the company. Whether it was a leasehold or the entire interest in favour of the assessee was only that of a licensee is not clear from the record though at one place the Tribunal has described the status of the assessee as lessee and on that footing this court while giving the direction for stating a case had mentioned the assessee’s status to be that of a lessee. Even if the assessee be a lessee, the expenditure would be capital investment and as such would not be deductible. In respect of capital
investment, depreciation is admissible, but as the learned standing counsel rightly pointed out, the question of depreciation had not been mooted and is not covered by the question which has been referred for our opinion. We cannot enlarge the scope of the question to accommodate the assessee’s contention that even conceding the investment to be of capital nature, depreciation thereon should have been deducted.
4. Our answer to the question referred to the court shall, therefore, be :
On the facts and in the circumstances of the case, the claim of the assessee in respect of Rs. 16,499 is of capital nature and, therefore, is not admissible as a deduction.
5. We make no order as to costs,
N.K. Das, J.
6. I agree.