the assessee had obtained a land on lease and then built thereon its press where it carried on its business as printer and publisher of a daily newspaper. Here also the lease was obtained on borrowed money and the interest paid thereon was claimed as deduction under aforesaid clauses of repealed Income Tax Act but it was also turned down. On the other hand, in the case reported as State of Madras v. G.J. Coelho (1964) 53 ITR 140), the assessee had purchased a plantation, consisting of tea, coffee and rubber plants out of borrowed money. He claimed the interest paid as deduction under section 5(e) of the Madras Plantation Agricultural Income Tax Act and finally the claim was upheld by Indian Supreme Court for the reason that it was not possible to dissociate the character of the assessee as the owner of the plantations and as a person working them as plantations and that if the payment of the interest on the amount borrowed for the purposes of plantations and the purchase of the plantations were to be viewed as an integrated whole, the payment of interest was so closely related to the plantations that the expenditure could be said to have been laid out or expended wholly and exclusively for the purposes of the plantations. Their Lordships also held that under the facts and circumstances of that case, neither a new capital asset was acquired nor any other enduring benefit was obtained. Thus, in view of discussion made above, it is clear that an expenditure shall be deemed an expenditure incurred for the purpose of business:
(i) If it is incurred by an assessee for the purposes of carrying on of the business; and
(ii) if it is not incurred for the purposes of acquiring a capital asset or obtaining an enduring benefit; and
(iii) if it is incurred as a part of an integrated scheme of business. However, it has to be kept into consideration that the use of the expression 'wholly and exclusively' further restricts the scope of the expenditure.
7. Before proceeding further, let me point out that a Full Bench of Lahore High Court in the case of In re : Banarsidas Jagan Nath (1947) 15 ITR 185) on the authority of British case-law, summarized the broad principles for distinguishing a capital expenditure from revenue expenditure and they are as follows: "(1) Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment; vide Lord Sands in Commissioners of Inland Revenue v. Granite City Steamship Company. In City of London Contract Corporation v.
Styles; Bowen, LI, observed as to the capital expenditure as follows: `You do not use it "for the purpose of' your concern, which means, for the purpose of carrying of your concern, but you use it to acquire the concern.'
(2) Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade: vidp Viscount Cave, L.C., in Atherton v. British Insulated and Helsby Cables Ltd. If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. Thus, if labour saving machinery was acquired, the cost of such acquisition cannot be deducted out of the profits by claiming that it relieves the annual labour bill, the business, has acquired a new asset, that is, machinery. `The expressions 'enduring benefit' or 'of a permanent character' were introduced to make it clear that the asset or the right acquired must have enough durability to justify its being treated as a capital asset.
(3) Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. Fixed capital is what the owner turns to profit by keeping it in his own possession. Circulating or floating capital is what he makes profit of by parting with it or letting it change masters. Circulating capital is capital which is turned over and in the process of being turned over yields profit or loss. Fixed capital, on the other hand, is not involved directly in that process and remains unaffected by it."
' With this background, let us revert to the merits of this appeal. From the facts stated above, it is clear that the borrowed money had not been utilized for the purposes of the business as the expenditure does not fall under any of the three conditions mentioned above. By spending the borrowed amount for acquiring the possession of the premises, the appellant has actually obtained a capital asset. Moreover, the expenditure has also been incurred in the character of an owner of the property and not in the character of a businessman, thus the claim of the appellant under either of the aforesaid clauses of section 23(1) of the Income Tax Ordinance, does not appear to be sustainable.
8. Mr. Mehtab Ahmed Khan, the learned counsel for the appellant, has laid much emphasis on the hire-purchase agreement although he has not produced any case-law in support of his contention. However, I refer to a Full Bench decision of this Tribunal reported as (1988) PTD 428 where the nature of hire-purchase transaction has been explained in detail as against other type of transfers. Distinguishing it from other type of transfers, the hire-purchase transaction has been described as follows: "The 4th category could be of that type of transfer of possession of goods where the vendee has to pay the consideration in instalments, but at the same time it is stipulated between the parties that if the vendee pays off all the instalments, he would have a right to get the ownership transferred to himself. Furthermore, it is also agreed between the parties that the vendee at his option would have a right to terminate the agreement and return back the goods to the vendor. As far as the vendor is concerned, he is generally given the right of getting the possession back on default of payment of instalments. It is this type of transfer under an agreement which is known as hire- purchase agreement, and as is obvious from this discussion, the ownership remains with the vendor till it is finally transferred to the vendee on payment of all instalments of consideration. Let us specifically observe here that in hire-purchase agreement the vendee has the right to return the goods at his option to the vendor during the subsistence of this agreement whereas in other type of transaction he is left with no such option."
9. In the same judgment, C.B.R. Circular No,9 of 1943 has also been noticed and payment on account of purchase has been described as capital outlay whereon the depreciation is allowable.
It is, therefore clear that under a hire-purchase agreement, the hirer does not become the owner of the property yet the expenditure has been treated as a capital expenditure by the C.B.R. On which depreciation has also been allowed. Mr. Mehtab Ahmed Khan has built up his argument simply on the point that since no ownership has vested in the appellant," the expenditure cannot be treated as capital expenditure. However, this is not the sole criterion for determining the nature of an expenditure. I have already discussed the conditions under which an expenditure can be treated to be an expenditure for the purposes of the business. Thus, acquiring the premises cannot be taken to be a part of the integrated scheme of business of running a Chinese Restaurant. The appellant is intending to acquire the asset as its owner and it is not necessary for him to run the business of running a Chinese Restaurant in it. He may use it for any purpose. Similarly, the business of running of a Chinese Restaurant may be established in any premises not necessarily belonging to or in possession of the appellant. Thus, one capacity of the appellant cannot be distinguished from his other capacity. I think that under the facts and circumstances of this appeal, the cases of Metro Theatre Co. (Supra) and Coelho (Supra) apply with full force in the case of the appellant as against the case of Assam Bengal Cement Company (Supra) and case of Gurinder Singh (Supra) which have been relied upon by Mr. Mehtab Khan. In the former, their Lordships of Indian Supreme Court have discussed at length the nature of a capital expenditure and revenue expenditure and in that case, the Lahore Full Bench case has also been approved and followed. In the other case relied upon by Mr. Mehtab Khan, the facts were quite different and the interest was allowed on that expenditure which was incurred for purchasing Ammonia Compressors which were used in air- conditioning of cold storage and a cinema theatre. Had the appellant used the borrowed money for buying cutlery, crockery and other material which is necessary for running the business of Chinese Restaurant, the legal position would have been just different and Gurinder Singh's case would have applied with full force.
10. The upshot of entire discussion is that the finding of both the officers below appears to be unexceptionably sound and consequently is hereby confirmed.
11. The appeal stands rejected accordingly. Appeal rejected.