1982 (7) TMI 7 - HC - Income Tax

Summary

Issues involved:
The judgment involves two main issues:
1. Whether a sum of Rs. 20,935 spent by the assessee for additions and alterations to a leased shed is a permissible deduction.
2. Whether a sum of Rs. 47,500 is assessable as capital gains in the case of the assessee.

Issue 1 - Deduction for Additions and Alterations:
The assessee-company, engaged in the manufacture of chemicals, leased a shed in Ahmedabad and spent Rs. 20,935 on additions and alterations during the relevant accounting year. The expenditure was claimed as renovation but was disallowed by the Income-tax Officer, who allowed only 5% depreciation. The Appellate Tribunal upheld this decision. The court held that the expenditure was incurred for repairs and necessary additions to make the shed usable for business purposes, not resulting in the acquisition of any enduring capital asset. Citing precedents, the court ruled in favor of the assessee, allowing the deduction as revenue expenditure.

Issue 2 - Assessment of Capital Gains:
The second issue pertained to the addition of Rs. 95,000 as capital gains by the Income Tax Officer. The assessee, a sub-tenant of a building, entered into an agreement to vacate the premises for a new construction and received a smaller area in the new building at a concessional price. The market value of the area in the new building was assessed at Rs. 98,000, and Rs. 95,000 was added as capital gains. However, the Appellate Tribunal accepted the assessee's argument, assessing only 50% of the difference between market price and the price paid for the new area as capital gains. Citing a relevant court decision, the court ruled in favor of the assessee, holding that the surrender of tenancy rights for an ownership flat did not attract capital gains tax.

In conclusion, the court answered the two questions as follows:
1. The deduction for additions and alterations was allowed in favor of the assessee.
2. The assessment of capital gains was ruled in favor of the assessee. The assessee was awarded costs for the reference.