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TMI Blog1982 (7) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... emium amount of Rs. 1,152 was a permissible deduction? " The facts on which the above two questions arose are within a very narrow compass. The assessment year in question is 1968-69. The assesseecompany entered into an agreement of sale with one Rampiaribai on February 23, 1962, under which Rampiaribai agreed to sell land known as Virawali Estate measuring 223 acres 15 guntas situated in Virawali Village in Thana District for a sum of Rs. 1,35,000. Earnest money of Rs. 10,000 was to be deposited with the vendor's attorneys. Admittedly, in respect of the same property, Rampiaribai had entered into an agreement with one Tulsidas J. Sharma on May 9, 1961, and had received Rs. 5,000 as earnest money from him. Under the agreement with the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Mrs. Wilson had already entered into an agreement in respect of the same property with Mahal Pictures and, in their suit, Mahal Pictures sought to enforce that agreement of sale. While all the abovementioned suits were pending, the assessee-company filed a suit in this High Court, being Suit No. 211 of 1967 against Rampiaribai for specific performance of the agreement to sell and in the alternative claiming damages of Rs. 45,00,000. Apart from Mrs. Wilson, the owner of the property, the other claimants to the property, viz., Mahal Pictures and Mohta, were defendants in the suit. The assessee-company had incurred an expenditure of Rs. 16,050, on account of litigation resulting from filing of Suit No. 211 of 1967. This amount was claimed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the agreement to purchase the land as an adventure in the nature of trade. But even then, according to the Tribunal, that was not enough to allow deduction of litigation expenses as revenue expenditure. The Tribunal took the view that what the assessee had acquired was merely a contractual right to purchase the estate, and several steps were required to be taken for acquisition of the asset and the litigation expenses would go to form a part of the title cost of the estate, if and when it was ultimately acquired. The Tribunal further took the view that there was no question of incurring expenses for protecting or defending its title to the estate, so long as the title to the estate is not acquired. These are facts so far as question No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y investment and that the Tribunal further found that the transaction was an adventure in nature of the trade. The learned counsel, therefore, contended that the company had a right under the agreement of sale, which it could enforce, and the litigation expenses incurred must be treated as having been necessary for protecting the right under the agreement of sale and should, therefore, have been allowed as a revenue expenditure. Now, the finding that the transaction was not in the nature of any investment and the decision of the company to purchase the land was an adventure in the nature of trade will have to be accepted for the purpose of this reference. These findings, however, do not necessarily mean that the assessee's claim for deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of its stock-in-trade or to treat it as a trading asset. Now it is no doubt true that under the agreement of sale the assessee had a right to have the sale transaction gone through and to have a sale deed executed by the vendor. Any expenses incurred, if the vendor had voluntarily executed the sale deed, would have formed part of the cost of the capital asset acquired, viz., the land. Since it was not possible for the assessee to have the sale deed executed, the assessee had to file a suit. The remedy resorted to by the assessee, viz., filing a suit, was to enforce the right to obtain title to the land agreed to be sold by the vendor. In such a case, there is no question of the litigation expenditure being incurred for protecting any a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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