1976 (2) TMI 79 - AT - Income Tax

Summary

Issues:
1. Computation of profit under section 41(2) for a demolished building.
2. Deduction of demolition expenses in the computation of profit.
3. Interpretation of the term "money payable" in the context of scrap value.
4. Allowance of normal expenses for earning income in the computation of profit.

Analysis:
1. The case involved the computation of profit under section 41(2) for a demolished building owned by the assessee, where the written down value was Rs. 3,552. The building became useless and was demolished during the year, with demolition expenses of Rs. 4,205 incurred and a realization of Rs. 15,640 for old materials sold. The Income-tax Officer calculated the profit at Rs. 12,088, not allowing the deduction of demolition expenses, leading to the appeal before the Tribunal.

2. Section 41(2) was examined, which specifies that when a building is demolished and the moneys payable along with scrap value exceed the written down value, the excess is chargeable to income tax. The assessee argued that the scrap value should consider what is realized after demolition, deducting the demolition expenses. It was contended that normal expenses for earning income should be allowed when treating the amount as income.

3. The Department emphasized the meaning of "money payable," referring to the Explanation to Sub-section (4) of section 41, equating it with the definition in section 32(1)(a). Citing precedent, it was argued that the gross price, not the net price, should be considered as realized.

4. The Tribunal analyzed the situation, noting that the concept of "money payable" applies when the building fetches money. In this case, the scrap value should be what the assessee realizes by breaking down the building, considering the demolition expenses. The Tribunal clarified that the value of the scrap, not its price, should be considered, and the demolition expenses of Rs. 4,205 should be deducted from the realization of Rs. 15,640. The decision in a previous case regarding brokerage expenses for buses was distinguished, emphasizing the specific circumstances of the demolition scenario. Ultimately, the Tribunal allowed the assessee's claim for deduction of demolition expenses and allowed the appeal.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the assessee's claim for deducting demolition expenses in the computation of profit under section 41(2) for the demolished building, based on the interpretation of scrap value and relevant expenses incurred.