TMI Blog1996 (6) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... " (1) Whether, on the facts and circumstances of the case, the Tribunal was in law justified in holding that the legal expenses Rs. 8,041 being expenses for registration of sale deed of Galakey Tea Estate already acquired in the assessment year 1968-69 was capital expenditure ? (2) Whether, on the facts and circumstances of the case, the Tribunal was in law justified in holding that legal expenses of Rs. 18,324 was capital expenditure ? " The common question suggested by the Revenue is as under : " (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that before charging interest under sections 139(8) and 217(1A) of the Income-tax Act, 1961, the assessee should be given opportunity of being heard although these sections do not provide for any hearing ? " The facts for the purpose of answering these questions may be narrated as follows : This reference relates to the assessment years 1975-76 to 1980-81. The assessee is a firm carrying on business of tea plantation and sale of tea. At the material time, the assessee acquired a plot of land measuring 78b. 2k. 9l. from Kisturmall Dulichand by a registered deed of mortgage by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, therefore, this was revenue expenditure. The Income-tax Officer rejected the claim of the assessee on the ground that the expenditure was of enduring benefit and, therefore, it was a capital expenditure. He held that the expenditure did not relate to the financial year 1974, relevant for the assessment year 1975-76. The Commissioner of Income-tax (Appeals) also upheld the action of the Income-tax Officer. On appeal by the assessee, the Tribunal also held that the acquisition was completed only after execution and registration of the sale deed and it was only then the assessee acquired title to the property. Therefore, in the opinion of the Tribunal, the expenditure was not incurred to protect or safeguard the business interest, but to acquire a capital asset or benefit of an enduring nature. The Tribunal came to the conclusion that the expenditure incurred in connection with the execution of the sale deed was capital in nature and cannot be allowed as a deduction, therefore, the Tribunal did not consider the question as to whether deduction was allowable in the assessment year 1975-76 or 1976-77. For the assessment year 1976-77, the assessee claimed deduction of legal expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated in the paper book, however, counsel for the parties submitted a copy of the said deed and both sides confirm that this was a copy of the original deed of mortgage dated August 23, 1963, executed by and between Banshidhar Shewbhagowan and Co., the assessee-firm, and Sri Dulichand Kejriwal, karta of the Hindu Mitakshara joint family. In the said deed, it has been recited as such : " The mortgagors hereto hereby convey, assign by way of mortgage by conditional sale all that lands described in the Schedules 1, 2, 3, 4, 5, 6, 7, 8 and 9 annexed herewith with all houses, buildings, structures, trees, bushes, tanks, etc., standing thereon to hold unto and to the use of the said mortgagee from the date of these presents subject to the conditions, however, that the mortgagors shall retain possession of the properties hereby mortgaged provided always and it is hereby declared that if the said sum of Rs. 36,000 (rupees thirty-six thousand) only with interest thereon from the date hereof at the rate of nine per cent. per annum shall be paid to the mortgagees on or before the 24th day of August, of the year one thousand nine hundred sixty-six, the properties, hereby mortgaged and assign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and the time limited for that purpose must be precisely observed. But in the case of a mortgage a failure to fulfil the strict terms of the agreement is not immediately followed by forfeiture of the property. Where under an agreement an option to a vendor is reserved for repurchasing the property sold by him the option is in the nature of a concession or privilege and may be exercised on strict fulfilment of the conditions on the fulfilment of which it is made exercisable. If the vendor fails to act strictly according to the terms of the contract, the court has no power to afford relief against the forfeiture arising as a result of breach of such terms. The real point of difference between the two kinds of transactions is that in the case of a mortgage by conditional sale, the sale is only ostensible, whereas in the case of an out and out sale, it is real. The ostensible or real nature of the transaction, however, can be only determined by finding out the intention of the parties. The crucial test is the intention of the parties and this must be gathered from the language of the document itself together with the surrounding circumstances. The Privy Council held in Balkishen Das ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided that if a sum of Rs. 36,000 with interest thereon from the date of the agreement at nine per cent. should be paid to the mortgagee on or before August 24, 1966, the properties mortgaged and assigned should be reconveyed to them. From the recital of the deed, in our opinion, this was only a mortgage by conditional sale and the mortgagor had no intention to part with the property and convey right, title and interest of the property by way of transfer. Therefore, the mortgagor continued to be the owner of the property and it was only on the date of decree the actual right, title and interest had been passed. Question No. 2 relates to the assessment years 1975-76 and 1976-77 for purchase of non-judicial stamp papers for execution of the sale deed of Galakey Tea Estate. The assessee claimed Rs. 10,10,000 and Rs. 26,365 towards legal expenses, etc. According to the assessee, the Galakey Tea Estate was acquired from Assam Company Ltd. in accordance with an agreement dated May 2, 1967, and the possession of the estate was taken on May 6, 1967, with retrospective effect from January 1, 1967, relevant for the assessment year 1968-69. However, the said sale deed was executed on April ..... X X X X Extracts X X X X X X X X Extracts X X X X
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