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TMI Blog1967 (3) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... nds had been executed by the purchaser. In respect of those plots there was an undertaking to lay out roads etc. The respondent-company took over the debts as well as the liabilities. After the purchase, the respondent-company itself sold certain other plots. The purchaser paid a percentage of the price in cash and undertook to pay the balance with interest at a specified rate in annual instalments which was secured by creating a charge on the land purchased. The sales made by the respondent-company were in all material respects similar to the sales made by the firm. A specimen copy of the sale deeds executed by the firm or the respondent company is annexure "A" to the statement of the case. The relevant provisions of the sale deed are as follows: ".... And whereas the said vendor hath agreed with the purchaser to sell him the said land . . . . hereunder written at the rate of price or sum of Rs. 3,000 per cotta free from all encumbrances. And whereas the total amount of price payable in respect of the said plot ... at the rate aforesaid amounts to Rs. 8,708-5-6. And whereas at the treaty for sale it was agreed by and between the parties hereto that one-third or thereabout of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said sum of Rs. 5,800 within ten years to be computed from the date of these presents together with interest thereon at the rate of 8% per annum calculated from the date of these presents up to the date of payment payable monthly . ." We are concerned in this case with the assessment of the respondent company for two periods. The first period is the accounting year ending June 30, 1949, corresponding to the assessment year 1950-51 and the second period is the accounting year ending June 30, 1950, corresponding to assessment year 1951-52. For the assessment year 1950-51, the respondent-company was maintaining its accounts in the mercantile system. According to this system, the value of the land sold was credited at Rs. 3,73,375 against which the unpaid balance was debited in the debtors' account and shown under the heading " book debts considered good---secured against mortgage of land ". Against this sale, there was an item of expenses aggregating to Rs. 2,77,047 of which the actual expenses paid out in cash was Rs. 1,12,577 and the estimated expenses against future development was Rs. 1,44,470. Out of the actual expenses paid out in cash amounting to Rs. 1,12,577 a sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal. The view taken by the Appellate Tribunal was that the Income-tax Officer should have made the assessment on the basis of cash system for the year 1951-52 and for that year only the cash receipts and disbursements should be considered. With regard to the question of unrealised consideration money, the Appellate Tribunal held that for both the assessment years the unrealised consideration should be treated as income. With regard to expenses incurred, the Appellate Tribunal upheld the finding of the Income-tax Officer. In other words, for both the assessment years it was held that the expenses incurred in respect of lands already sold before the respondent-company took over should be disallowed. At the instance of the respondent-company the Appellate Tribunal stated a case to the High Court on the following questions of law : " 1. Whether, on the facts and circumstances of the case, the entire sums of Rs. 1,12,577 and Rs. 3,43,155 for the assessment years 1950-51 and 1951-52 respectively spent in carrying out the obligations subject to which lands were sold by the assessee were allowable in computing the assessee's profits from the land business. 2. Whether, on the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lands already sold which did not form part of its stock-in-trade is not correct. In the present case, the development of the entire land is an integrated process and cannot be sub-divided into water-tight compartments as the making of the roads and the provision for drainage and street lighting etc. cannot be related to any particular piece of land but the development has to be made as a whole as a complete and unified scheme. It is a case of commercial expediency and as pointed out by this court in Eastern Investments Ltd. v. Commissioner of Income-tax: "A sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade. " (Approving the dictum of Viscount Cave L.C., in Atherton v. British Insulated & Helsby Cables Ltd.). The same test has been applied in Cooke (H. M. Inspector of Taxes) v. Quick Shoe Repair Service, in which the agreement by which the respondent firm purchased a shoe repair business provided that the vendor should disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the decision in Royal Insurance Company v. Watson has no application to the present case. There is nothing to show in the present case that the obligation incurred under clause 5 of the sale deed was quantified and formed part of the consideration amounting to Rs. 34 lakhs and odd mentioned in the sale deed as paid by the respondent-company. We, accordingly, reject the argument put forward by Mr. Mitra on behalf of the appellants on this aspect of the case. We next proceed to consider the question whether the full price as recited in the sale deed should be regarded as having been realised by the respondent-company for the relevant accounting years and not merely the actual cash paid by the purchasers. The recital in the sale deed showed the consideration for the transfer of the property, that part of the consideration was paid in cash and the balance was secured by a mortgage executed by the purchasers on the same date. It was argued by Mr. Mitra that the amounts of the consideration money not received in cash but which were treated as a loan to the purchasers and for which the lands sold were mortgaged in favour of the respondent-company should be treated as constructive r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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