1993 (12) TMI 27 - HC - Income Tax

Summary

Issues Involved:

1. Whether the Tribunal was justified in treating the expenditure incurred by the assessee as business expenditure u/s 37(1) of the Income-tax Act, 1961.
2. Whether the expenditure of Rs. 6,96,288 incurred for acquiring a right to vacant possession is an allowable business expenditure.

Summary:

Issue 1: Business Expenditure u/s 37(1) of the Income-tax Act, 1961

The Tribunal allowed the deduction of Rs. 6,96,288 as business expenditure, but the Revenue contended that this expenditure was of a capital nature and not deductible u/s 37(1) of the Income-tax Act, 1961. The High Court noted that neither the Income-tax Officer, the Commissioner of Income-tax (Appeals), nor the Tribunal had classified the expenditure as capital. Therefore, the first question did not arise from the Tribunal's order and was declined to be answered.

Issue 2: Allowable Business Expenditure

The Tribunal held that the payment of Rs. 6,96,288 to Laxmi Textile Mills Pvt. Ltd. for securing vacant possession of the premises was made on grounds of commercial expediency and was deductible as business expenditure. The High Court examined the facts and found that the assessee-company was engaged in the business of letting out properties and had to pay the amount to remove an impediment to its business operations. The Court distinguished this case from Chloride India Ltd. v. CIT [1981] 130 ITR 61 and Mather and Platt (India) Ltd. v. CIT [1987] 168 ITR 533, where the expenditures were held to be capital in nature. The Court found support in the decision of the Kerala High Court in Commr. of Agrl. I.T. v. Bombay Burmah Trading Corporation Ltd. [1981] 131 ITR 154 and the Supreme Court decision in CIT v. Ashok Leyland Ltd. [1972] 86 ITR 549, which supported the assessee's claim that the expenditure was revenue in nature.

Conclusion:

The High Court answered the second question in the affirmative, holding that the expenditure of Rs. 6,96,288 was an allowable business expenditure. There was no order as to costs.