2002 (7) TMI 44 - HC - Income Tax

Business Loss - Breach Of Agreement - Whether on the facts and in the circumstances of the case the Tribunal was correct in law in allowing the assessee s claim for writing off of the sum of Rs. 52, 489 and litigation expenses at Rs. 12, 000? - The admitted facts are that the advance was paid for acquiring the agricultural land to set up a factory but when the agricultural land was not acquired no capital asset came into existence therefore there is no question of allowing depreciation on such asset. If any asset is acquired and if it is a benefit of enduring nature then of course the assessee cannot get deduction of the amount for acquisition of land as revenue expenditure. When land was not acquired no capital asset has been acquired and therefore the payment of Rs. 52, 489 is to be allowed as a business loss. - We agree with the view taken by the Tribunal. No interference is called for.

Summary

Issues:
- Allowance of writing off of a sum and litigation expenses as a deduction under the Income-tax Act, 1961.

Analysis:
The case involved a dispute regarding the allowance of writing off a sum of Rs. 52,489 and litigation expenses at Rs. 12,000 as a deduction under the Income-tax Act, 1961. The assessee had advanced the sum to an agriculturist for purchasing agricultural land with the intention of setting up a boiler factory. However, due to the agriculturist's refusal to refund the amount and subsequent loss in a civil suit, the assessee wrote off the sum in its books of account and claimed it as a revenue loss. The Assessing Officer initially rejected this claim, stating that since the amount was advanced for acquiring a capital asset, it cannot be allowed as a deduction in the assessee's income.

Upon appeal, both the Commissioner of Income-tax (Appeals) and the Tribunal were involved. The Tribunal, in its decision, considered the nature of the business and the fact that no capital asset was acquired due to the project not materializing. The Tribunal referred to previous Supreme Court judgments to support its decision that since no benefit of enduring nature resulted to the assessee, the expenditure in question cannot be treated as of capital nature. The Tribunal upheld the assessee's contention, stating that the amount written off should be allowed as a business loss.

The High Court agreed with the Tribunal's view, emphasizing that since no capital asset was acquired due to the failure of the project, the amount written off should be treated as a business loss. The court found no reason to interfere with the Tribunal's decision and answered the question in favor of the assessee and against the Revenue. Consequently, the reference made was disposed of accordingly.