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Issues involved: The judgment involves two main issues: 1. Whether certain expenses incurred by the assessee are deductible in computing capital gains, and 2. How the interest income from Indian Overseas Bank, Colombo should be taxed.
Issue 1: Expenses Deductible in Computing Capital Gains The assessee sold certain lands after plotting them as house sites and claimed expenses of Rs. 67,339 as cost of improvement and land plotting. The Revenue disputed the deduction, arguing that the expenses were not solely incurred for the transfer of the land. However, the Tribunal found that all expenses, including travelling, stationery, salary, and building repairs, were exclusively related to the land transfer, as the land was converted into house sites to fetch a better price. The Tribunal concluded that these expenses are deductible in computing capital gains, a decision upheld by the High Court. Issue 2: Taxation of Interest Income The assessee received interest income from Indian Overseas Bank, Colombo, and claimed deduction of foreign exchange entitlement charges and tax deducted at source. The Commissioner of Income-tax (Appeals) held that the interest income should be assessed on an accrual basis without deductions. However, the Tribunal disagreed, stating that only the net income after tax deduction by the Ceylon Government should be taxed. The High Court found this discrepancy in views requires detailed consideration and directed the Tribunal to refer the second question for the court's opinion. In conclusion, the High Court upheld the deduction of expenses incurred by the assessee in connection with the land transfer for computing capital gains. However, regarding the taxation of interest income, the court directed a detailed consideration of whether the income should be taxed before or after deduction of tax at source by the Ceylon Government.
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