TMI Blog1998 (12) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... wad, in the year 1962, who was owner of such lands bearing Survey No. 138 and 156(2). Earlier to this transaction, said Gaikwad had also sold 1 acre and 20 Guntahas of land from Survey No. 138 in favour of Shri Chhaburao Pradhan on 20th February 1956 and also sold 20 Guntahas of land to Shri Subhash Pradhan on 19th May, 1961. Shri Chhaburao Pradhan and Subhasn Pradhan were living in Bombay. As soon as they came to know that lands purchased by them were encroached by the assessee, they filed a suit in Civil Court at Pune. The Civil Court vide its order dated 11-2-1985 held that assessee had encroached upon the land of the Plaintiff's and consequently passed the decree in favour of plaintiffs. This was further confirmed by the court of Additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court in the case of Dalmia Jain Co. Ltd. vs Commissioner of Income-tax [1971] 81 ITR 754. He took us through the said judgment and then submitted that litigation expenditure incurred to protect the existing business of the assessee was allowed as revenue expenditure in that case. He then referred to various decisions of the High Courts namely Commissioner of Income-tax vs New Garages Ltd. [1981] 129 ITR 122 (Delhi), Commissioner of Income-tax vs Mohanlal Bros. [1982] 133 ITR 642 (Bom) and Commissioner of Income-tax vs Deluxe Film Distributors Ltd. [1978] 114 ITR 434 (Cal). It was then contended by him that Supreme Court in the case of V. Jaganmohanrao's case (supra), had taken a contrary view which has not been followed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecisions relied upon by the assessee's counsel were distinguishable on facts. 6. Rival submissions of the parties, material placed before us as well as case law referred to before us have been considered carefully. The perusal of the orders passed by the civil court and appellate court reveals that assessee had encroached upon the lands owned by Shri Chhaburao Pradhan. It is only during the pendency of the appeal proceedings before the Hon'ble High Court that assessee entered into a compromise with the plaintiffs. At this stage, it would be useful to refer clauses 2, 3 and 5 of the said compromise decree which are set out as under :- "(2). The Respondent No. 1 Chhaburao Nilkanth Pradhan further declares and states that he has given up h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 7. As far as the legal position is concerned, we are of the view that issue is squarely covered by the decision of the Apex Court in the case of V. Jaganmohan Rao's (supra) which was delivered by Bench of three Judges. The following test was laid down by the Apex Court:- "It is well established that where money is paid to perfect a title or as considerations for getting rid of a defect in the title or a threat of litigation, the payment would be capital payment and not a revenue payment." 8. However, it was contended seriously by the learned counsel for the assessee that his case was covered by the later decision of the Supreme Court in the case of Dalmia Jain Co. Ltd. (supra) which was delivered by a Division Bench. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a step further in the later case by observing that if the expenses are incurred to protect the business of the assessee, then such expenses should be considered as revenue expenditure. If both the judgments of the Hon'ble Supreme Court are considered harmoniously, then, in our opinion, the legal proposition would emerge as under :- 1. If the expenditure is incurred for the purpose of perfecting or completing a title; or for curing or getting rid of defect in the title to the capital asset, then it would be capital expenditure. 2. If the expenditure is incurred for the purpose of protecting the business of the assessee, then it would be revenue expenditure. 10. Much reliance has been placed by the learned counsel for the assessee upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, in order to get rid of such defect in the title, the assessee had paid Rs. 1,15,000 to the sons of the vendors. The judgment of the Supreme Court in the case of V. Jaganmohan Rao (supra) was delivered on the basis of these facts. Therefore, the test laid down by the Supreme Court has to be applied where there is a defect in the title of the assets only and it cannot be extended further to other situations. 12. In the later decision in the case of Dalmia Jain Co. Ltd. (supra) the Supreme Court was concerned with a case where assessee has not acquired any asset. It was carrying on the business of working the quary as an agent of the Government. Third party had filed a suit against the Government for specific performance and in the alte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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