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Issues:
Interpretation of clause 20 of agreements of sale for deduction of payment of Rs. 35,000 for assessment year 1969-70. Analysis: The case involved a reference under section 256(1) of the Income Tax Act, 1961 to determine if the Tribunal was justified in allowing a deduction of Rs. 35,000 as claimed by the assessee for the assessment year 1969-70. The dispute arose from an agreement of sale for a cinema property where the assessee paid Rs. 35,000 to the vendors as compensation during the period between signing the agreement and registration of the sale deed. The Income Tax Officer (ITO) treated this amount as part of the purchase price, while the Appellate Authority Commissioner (AAC) upheld the addition as part of the purchase consideration. However, the Income-tax Appellate Tribunal (Tribunal) held that the payment was compensation for the use of the balance sale price kept by the assessee and was incidental to the business, thus revenue in nature. The Tribunal's decision was based on the clauses of the agreements, which allowed the assessee to run and manage the cinema property upon possession, with the vendors' only right being to receive the balance sale consideration. The payment of Rs. 35,000 was deemed compensation for the use of the unpaid purchase price, not creating any enduring asset or advantage for the business. The Tribunal concluded that the payment was revenue in nature and not capital expenditure, as it was related to the use of the money retained by the assessee and was akin to interest or compensation for the intervening period. The Department argued that the payment was towards perfecting the title and should be considered capital expenditure, citing a Supreme Court case. However, the court analyzed the agreements and the purpose of the payment, determining that it was a revenue disbursement related to the use of the unpaid purchase price. The court found that the payment did not enhance any asset value or create a new asset, distinguishing it from cases involving improvement of fixed capital assets. Consequently, the reference was answered against the Department, with no order as to costs.
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