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Commissioner of Income-tax, Delhi (Central) Vs. D.L.F. Housing Construction (P.) Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax References Nos. 14 and 15 of 1971
Judge
Reported in(1980)18CTR(Del)312; [1981]128ITR773(Delhi)
ActsIncome Tax Act, 1922 - Sections 10(2)
AppellantCommissioner of Income-tax, Delhi (Central)
RespondentD.L.F. Housing Construction (P.) Ltd.
Excerpt:
- - 9 where his incapacity to earn income from the property arises either because he has placed himself voluntarily in that position or because on account of some special circumstances he is unable for the time being to enjoy any income from the property even though he has dominion or control over the property. i would, however, like to emphasis the chronology of the relevant transactions :26-10-56 :46. bhalla and prem raj, son of pt. lila ram could sell the plots to his best advantage. the simultaneity of the transactions put through on june 11, 1958, clearly show that it was a joint deal by all of them. 56. it might be asked why if the payment was made by the assessed to enable it to acquire the land free of the claims of bhalla and prem raj, it cannot be treated as a payment made to.....d.r. khanna, j.1. the income-tax appellate tribunal, delhi bench 'c', has referred under s. 66(1) of the indian i.t. act, 1922, the following questions, said to be those of law for the opinion of this court : '1. whether, on the facts and circumstances of the case, the annual value of the property at 14, aurangzeb road, new delhi, for the period commencing 1st october, 1958, and ending 31st may, 1959, that is, prior to 1st june, 1959, has been rightly held to be includible in the total income of the assessed-company 2. whether, on the facts and in the circumstances of the case, the tribunal was right in holding that a sum of rs. 10,901 paid by the assessed-company to shri moti ram bhalla was an expenditure of revenue nature and hence allowable in the computation of the total income of.....
Judgment:

D.R. Khanna, J.

1. The Income-tax Appellate Tribunal, Delhi Bench 'C', has referred under s. 66(1) of the Indian I.T. Act, 1922, the following questions, said to be those of law for the opinion of this court :

'1. Whether, on the facts and circumstances of the case, the annual value of the property at 14, Aurangzeb Road, New Delhi, for the period commencing 1st October, 1958, and ending 31st May, 1959, that is, prior to 1st June, 1959, has been rightly held to be includible in the total income of the assessed-company

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a sum of Rs. 10,901 paid by the assessed-company to Shri Moti Ram Bhalla was an expenditure of revenue nature and hence allowable in the computation of the total income of the assessed-company ?'

2. The former question has been referred at the instance of the assessed, namely, the D. L. F. Housing Construction (P.) Ltd., New Delhi, and the other on reference by the Commissioner.

3. The assessment year involved was 1960-61, the previous year of which ended on 30th September, 1959.

4. The assessed is a private limited company carrying on business in colonization with its registered office at New Delhi. After purchasing lands, a develops them into suitable plots, makes provision for roads, parks, etc., and then sells the plots.

5. One controversy germane to the present reference pertains to income from property bearing No. 14, Aurangzeb Road, New Delhi. This property had been purchased by the assessed-company from one Mr. B. D. Meattle on 27th December, 1957, under a registered sale deed. The vendor was in terms thereof allowed to use the premises till 31st May, 1959, as a licensee without payment of any fee. He, however, did not vacate the premises even after that date and as such the assessed had to file a civil suit against him. This was compromised on 18th February, 1961, in terms of which Mr. B. D. Meattle was allowed to occupy the property up to 31st December, 1962, as a licensee. However, he was enjoined to pay Rs. 1,000 as license fee, w.e.f., 1st June, 1959, till 31st December, 1962, or till such earlier date by which he vacated the property.

6. During the course of assessment, the assessed pleaded that since no income was realised by it from this property prior to 1st June, 1959, the property income could be taxed during the relevant previous year for four months only, i.e., from 1st June, 1959, to 30th September, 1959, when the accounting year ended.

7. This, however, did not prevail with the ITO, as he held that receipt of rent was not necessary for the determination of income under the head 'Property'. According to him the income had to be assessed on the annual value whether the rent was received or not. The property was noted to have purchased by the assessed in 1957, and thereafter it became the owner thereof. It was only under one of the terms of the sale deed that Mr. B. D. Meattle was allowed to live in the property free of rent as licensee up to 31st May, 1959. He assessed the property on its annual value for the full 12 months at Rs. 12,000.

8. This decision was upheld in appeal by the AAC. According to him income from property was taxable in respect of the bona fide annual value of the property; and this value had to be by deeming effect, the sum for which the property might reasonably be let from year to year. He next observed that the capability of property to earn the monthly rent of Rs. 1,000 could not be disputed, considering its location and the compromise arrived at in the civil court. As regards the permission allowed to Mr. B. D. Meattle to use the property, as a mere licensee till 31st May, 1959, it was noted that this was part of the terms of the sale and was closely wedded to the consideration of the property. The concession was treated as part of the agreement for purchase of the property.

9. In second appeal, the Tribunal again sustained the decision of the ITO. It observed that the tax charged under s. 9 of the I.T. Act was on artificial or notional income, irrespective of the question whether owner received any income or not. Specific reference was made to Bombay High Court decision in the case of D. M. Vakil v. CIT : [1946]14ITR298(Bom) , wherein Kania, Acting C.J., speaking for the court, had observed as follows (p. 302) :

'....... the tax shall be payable by the assessed in respect of the bona fide annual value irrespective of the question whether he receives that value or not. Section 9(2) provides that for the purposes of this section, the expression 'annual value' shall be deemed to mean the sum for which the property might reasonably be expected to let from year to year. It is again significant to note that the word used is 'might' and not 'can' or 'is'. Reading these two paragraphs of section 9 together, it is clear that the income from property is thus an artificially define income and the liability arises from the fact that the assessed is the owner of the property. It is further provided in the section that if the owner occupies the property he had to pay tax calculated in the manner provided therein. thereforee, by reason of the fact that the property is not let out, the assessed does not escape taxation.'

10. The Tribunal declined to draw any support from the decision of the Delhi High Court in the case of CIT v. R. B. Jodhamal Kuthiala : [1968]69ITR598(Delhi) , on which the assessed primarily placed reliance for asserting that a person could be termed an owner for the purpose of s. 9 only if he has such control over the property as to enable him to earn income there from, and that the assessed must be in a position to earn income from property unless he chooses not to do so or the circumstances do not permit him to earn income, even though he has dominion or control over the property. It was noticed from the facts that during the relevant the assessed's property remained vested in the Custodian of Evacuee Property, Pakistan, and that the title of the assessed remained in statutory suspense. As such the High Court held that the statutory suspension took away the right of the assessed to claim to be the owner of the property during that period. The facts of the present case were considered to be altogether different.

11. It is in these circumstances that the assessed has obtained reference of the first question for the opinion of this court.

12. The second controversy which arises has reference to the claim for Rs. 10,901 out of Rs. 43,816 said to have been paid as brokerage to Moti Ram Bhalla in connection with the purchase of Bahapur land (Kailash Colony). The facts relevant in this regard were that on October 26, 1956, an agreement for the purchase of land was entered into by Moti Ram Bhalla and Prem Raj Sharma with Pt. Lila Ram for the purchase of the latter's lands at the rate of Rs. 1,025 per bigha Kham. Prem Raj Sharma was none else but the son of Pt. Lila Ram himself. The earnest money settled was Rs. 2 lakhs which was paid by the intending purchasers by the execution of two promissory notes, each of Rs. 1 lakh, in favor of the seller. On December 18, 1956, these two persons executed a deed of partnership between them wherein reference was made to the said agreement of sale, dated October 26, 1956, entered into with Pt. Lila Ram. The partnership was to be known as L. M. G. Colonisers and Traders. It was mentioned in that deed that the partnership was formed for carrying on the business of buying and selling lands and developing the same by themselves or jointly with others. It appears that Pt. Lila Ram also agreed to effect sale of land in favor of this partnership.

13. However, within about a fortnight later, on January 2, 1957, L. M. G. Colonisers and Traders consisting of Prem Raj and Moti Ram Bhalla entered into partnership with the assessed-company and in the preamble to the deed it was recited, inter alia, as follows :

'Whereas the said firm has obtained the consent of the said Pt. Leela Ram to join the said company as a partner for the purchase of the said land under the said agreement and both the said partners are entering into a new agreement between the said firm and the said Pt. Leela Ram.'

14. In other words, it was agreed that the purchase was to be effected by this new partnership and the business was of joint enterprise to purchase and develop lands into a residential colony and then sell the plots. Under one of the clauses of this new partnership, the assessed-company was to pay to Pt. Lila Ram a sum of Rs. 2 lakhs towards the purchase of land, as had been already done by the L. M. G. Colonisers and Traders, of a similar sum. On the same day, the newly constituted partnership entered into a fresh agreement with Pt. Lila Ram to buy lands from him.

15. However, before this partnership could carry out the purpose of which it came into existence and before the purchase of any land form Pt. Lila Ram was effected, there was a dissolution of the partnership on June 11, 1958. The deed then executed recited that the sum of Rs. 4 lakhs paid by the purchasers to the seller on account of earnest money under the said agreement dated January 2, 1957, had been refunded by the seller to the purchasers and the agreement of sale cancelled. Those four lakhs of rupees were constituted of Rs. 2 lakhs about which Moti Ram Bhalla and Prem Raj Sharma had executed two promissory notes of Rs. 1 lakh each as aforesaid, and Rs. 2 lakhs which the assessed paid to Pt. Lila Ram on joining in partnership with the said two purchasers on January 2, 1957.

16. On the same day, viz., June 11, 1958, the assessed-company entered into an agreement of sale with Pt. Lila Ram for the purchase of 19,811 bighas 1 bids was of land situated in villagers Bahapur and Tughlakabad, described in Sch. 'A' and 232 bighas and 1 bids was of land in village Bahapur, described in Sch. 'B' to the agreement in its favor. The assessed-company at that time also wrote a letter to Prem Raj that in lieu of his services in connection with the execution of the agreement of sale dated June 11, 1958, between the assessed and Pt. Lila Ram, it agreed to allot to him 22 plots of land in the proposed colony. After giving particulars of those plots, it was next stated that the price charged would be Rs. 9 per square yard including the cost of development.

17. Subsequently, on April 11, 1959, the assessed-company agreed to pay Rs. 43,861.50 to Moti Ram Bhalla and this was said to be 2% of Rs. 21,93,058 which was the total amount of consideration paid for the purchased lands from Pt. Lila Ram. In the receipt executed by M. R. Bhalla he mentioned that the payment was 'on account of full and final payment in Bahapur land purchased commission account'. Out of this amount of Rs. 43,861, the actual payment which took place in the present year was of Rs. 10,901.

18. It was this amount of Rs. 10,901 which was claimed by the assessed as revenue expenditure in the present year. The ITO, however, disallowed that as, according to him, the payment had been made to M. R. Bhalla for surrendering his interest in the partnership to the assessed. M. R. Bhalla was examined in this connection and he admitted that he had received the sum as consideration for surrendering his interest in the partnership.

19. In appeal, the AAC upheld this decision. He noted that when the assessed entered into an agreement of purchase of land with Pt. Lila Ram on June 11, 1958, the earlier agreement of sale had already stood cancelled. It was further noticed that there was no agreement between the assessed and Moti Ram Bhalla whereunder the latter was to be allowed brokerage on the land purchased by the assessed from Lila Ram nor the sale deed recited so. Statement of Moti Ram Bhalla recorded on March 8, 1965, by the ITO was referred to in some detail. He had then stated that he had to leave the partnership with the assessed as their schemes were not being passed by the authorities and further he took the commission from D. L. F. and left the partnership. He next stated that he charged the commission as the deal between the assessed and Pt. Lila Ram was arranged through him. The assessed, in the circumstances, pleaded that even if the payment to Shri Moti Ram Bhalla was in consideration of his retirement from the firm, it should be treated as revenue expenditure. This was negatived and in support reliance was placed upon the decision in the case of R. Guruswamy Naidu v. CIT : [1952]21ITR188(Mad) . The decision in the case of V. N. V. Devarajulu Chetty & Co. : [1950]18ITR357(Mad) , on which the assessed relied, was distinguished on the ground that the retiring partner's rights with regard to certain valid contracts entered into during the period of partnership had been kept alive and continuing firm was obliged to pay sums later received on the basis of those contracts. The AAC held that, in the absence of any mention of Shri Moti Ram Bhalla in the purchase deeds, there was nothing to show that he had any hand in the transaction at all.

20. The Appellate Tribunal, however, reversed this decision and made reference to the following portion of Moti Ram Bhalla's statement reply to a question put to him by the assessed's counsel :

'I charged commission on account of deal with D. L. F., they paid me commission and greed to give 22 plots to Mr. Prem Raj as compensation.'

21. The Tribunal next referred to four decisions : Ramji Das Jaini and Co., In re , R. Guruswamy Naidu v. CIT : [1952]21ITR188(Mad) , Devarajulu Chetty & Co. v. CIT : [1950]18ITR357(Mad) , and M. S. Kandappa Mudaliar v. CIT : [1957]32ITR313(Mad) , and observed that in the present case after the dissolution of the partnership with Prem Raj and M. R. Bhalla, the assessed acquired full rights in the lands which were its stock-in-trade. In the circumstances it was observed that it could be said that the assessed paid the amount in question to buy out a partner in a firm which continued to carry on business. In view of the earlier association of M. R. Bhalla as a partner with the assessed under the deed dated January 11, 1957, and its subsequent cancellation by mutual agreement, it was held that it was clear that the assessed was under an obligation to him in the same manner as it was in regard to Prem Raj. Finally, the Tribunal concluded as under :

'In the instant case the net result of the transactions referred to above, which preceded the agreement dated June 11, 1958, was that the right to purchase the lands which had been acquired by three parties, viz., the assessed-company on the part and the two partners, Prem Raj and M. R. Bhalla on the other part, came to be acquired exclusively by the assessed. On the fact of the case, it is clear that the payment was either a 'commission' payment or payment made with a view to acquire exclusive rights to the stock-in-trade of the assessed, land, for the purpose of colonization. We are of the considered opinion that the decisions relied on by the Appellate Assistant Commissioner are inapplicable and that the principles laid down by the Madras High Court in the two decisions referred to above apply. Accordingly, we hold that the payment in question is an item of revenue expenditure, accept the assessed's claim and delete the addition of Rs. 10,901 in the assessment.'

22. It is as such that the revenue has now obtained reference of question No. 2 for the opinion of this court.

23. With this background of the fact, we have heard the parties and given our careful consideration to all the circumstances. So far as the income from property at 14, Aurangzeb Road, New Delhi, is concerned, it has been vigorously pleaded from the side of the assessed that although it had effected its purchase on December 29, 1957, the possession thereof was not handed over by the seller, and in terms of the sale deed, the assessed was obliged to allow him to remain in possession as a licensee up to the end of May, 1959, without payment of any rent or license fee. It had no immediate right of obtaining inchoate. It was only from June, 1959, that the assessed for the first time became entitled to a license fee of Rs. 1,000 per month under the compromise decree passed by the civil court, and, thereforee, from that month onwards the assessed started disclosing income from this property.

24. In this regard reference had been made to the scheme of the income-tax law in order to point out that basically income-tax is a tax on income. Where no income could possibly accrue it has been urged, the question of levy of such tax does not arise. Reliance was placed upon the Full Bench decision of the Delhi High Court in the case of CIT v. R. B. Jodha Mal Kuthiala : [1968]69ITR598(Delhi) in which it has been observed that though s. 9 of the Indian I.T. Act, 1922, merely prescribed the notional method of arriving at the income from property on which the assessed had to be taxed, basically the tax was on income. The scheme of the Act, it was next observed, showed that a person can be termed as an owner for the purpose of s. 9 only if he has such control over the property as may enable him to earn income there from. In other words, the assessed must be in a position to earn income from the property. In that case the property owned by the assessed had been left at Lahore on the partition of the country in 1947. The Pakistan Government had issued the Administration of Evacuee Property Ordinance, 1949, whereunder that property vested in the Custodian in Pakistan. No rent was being realised by the assessed who had migrated to India and was residing in India. He, however, claimed certain losses towards that property on the basis of a large interest bearing loan which he had obtained from a bank for its initial purchase in the year 1946. The Full Bench of this court, however, declined to allow that loss. It was observed that the right of the assessed to claim to be the owner of the property was taken away by the Pakistan statute and he could not be said to be the owner of the property for the purpose of s. 9 of the Indian I.T. Act, 1922. Neither could the annual letting value of the property so vested be included in the assessed's income nor could he be allowed the deductions under s. 9.

25. However, there are certain significant observations in this decision wherein it was noted that the assessed must be in a position to earn income from the property before he can be taxed under s. 9 of the 1922 Act. Those were to the effect that he should not be shown to have chosen not to earn that income or the circumstances did not permit him to earn income even though he had dominion or control over the property.

26. This Full Bench decision was taken in appeal by the assessed in that case to the Supreme Court (see R. B. Jodhamal Kuthiala v. CIT : [1971]82ITR570(SC) ). That court upheld the view taken. After considering the various provisions of the Pakistan Administration of Evacuee Property Ordinance, it was found that in the eye of the law the custodian was the owner of the property. The following observations made in this decision, may be reproduced here with advantage (see p. 575) :

'The question is who is the 'owner' referred to in this section Is it the person in whom the property vests or is it he who is entitled to some beneficial interest in the property It must be remembered that section 9 brings to tax the income from property and not the interest of a person in the property. A property cannot be owned by two persons, each one having independent and exclusive right over it. Hence, for the purpose of section 9, the owner must be that person who can exercise the rights of the owner, not on behalf of the owner but in his own right.'

27. From the side of the revenue, on the other hand it has been asserted that the present assessed had of its own volition allowed the seller to remain in possession even after the sale and chose not to charge any rent or license fee from him. It has been asserted that there is basic difference between the passing of the title over the property and the delivery of its possession. The former did pass when the registered sale deed was executed on December 29, 1957. Thereafter, the assessed became the absolute owner of the property and if it allowed the seller to still remain in possession as license it could still be taken that the constructive possession was with the assessed. Reference has been made to the decision of the Bombay High Court in the case of D. M. Vakil : [1946]14ITR298(Bom) , on which the Tribunal too had relied. The circumstance that the assessed had agreed to the seller remaining in possession for some time after the sale without charging any rent or license fee, it is contended, showed that the assessed must have considered some advantage in this term in the form of concession in sale consideration or otherwise.

28. In our considered opinion the decisions given in the case of Jodha Mal Kuthiala : [1968]69ITR598(Delhi) - on appeal : [1971]82ITR570(SC) , do not, in any manner, come to the aid of the assessed. There, by the operation of a statute in Pakistan, the property had vested in the custodian who had in the eye of law become its owner. It was as such that the courts declined to treat the assessed as owner within the meaning of s. 9 of the 1922 Act. A property, it was observed by the Supreme Court, cannot be owned by two persons, each one having independent and exclusive right over it. Hence, for the purpose of s. 9 the owner must be that person who can exercise the right of an owner not on behalf of the owner but in his own right. Moreover, the Delhi High Court has specifically excluded cases where an assessed of his own volition chose not to earn income from the property or the circumstances did not permit him to earn income from the property or the circumstances did not permit him to earn income even though he had dominion or control over the property. In such cases, s. 9 of the Act was considered applicable and the property income was still assessable in his hands.

29. The scheme of the I.T. Act shows that tax is payable by an assessed in respect of the bona fide annual value of the property and the same is not dependent upon the question whether he receives that value or not. It is because of the artificially defined income and the liability arising from the ownership of the property that the same is treated to accrue. The liability does not depend on the power of the owner to let the property nor is it dependent on the capacity of the owner to receive the bona fide annual value. Basically it is the sum for which the property might reasonably the expected to let from year to year. The determining factor thus is the reasonable expectancy of rent from the property. A sort of hypothetical situation has to be created as if the property is being let out and what rent it would fetch in the open market.

30. The contract of sale which the assessed settled with Mr. B. D. Meattle for the purchase of this property was in terms, mutually agreed upon, of their own volition. The assessed had thereby voluntarily agreed to take the seller as a licensee of the property up to the end of May, 1959, without payment of any license fee or rent. For this unusual clause in allowing the seller to remain in possession, the assessed must have seen some advantage either in the form of some concession in the sale price or as forestalling any apprehension of prospective competition from other buyers who might have come forth to pay higher price if sale effected at a time when the seller was in a position to hand over vacant possession. Be that as it may, the execution of the sale deed had the effect of passing the ownership of the property to the assessed. The tax on property was attached to this ownership. It was not dependent upon the assessed enjoying any income. If it allowed the seller to still remain in possession or even had kept the premises vacant and locked, it could not escape from the levy of tax on the notional income of the property. The Bombay High Court decision in the case of D. M. Vakil : [1946]14ITR298(Bom) , fully supports the claim of the revenue that the mere fact that the trustees or the owner could not have realised any income whatsoever from the property would not render them as not liable to pay any income-tax in respect of that property.

31. We are, thereforee, in agreement with the conclusion arrived at by the Tribunal in so far as the matter raised in question No. 1 is concerned. The question is answered in the affirmative.

32. Adverting to the other controversy relating to the payment of Rs. 10,901 to Mr. M. R. Bhalla by the assessed, it has to be first determined what was the consideration for which this payment was made. In case it was in lieu of any services rendered as a broker or otherwise by Moti Ram Bhalla to the assessed for the acquisition of the stock-in-trade which, according to the assessed in the present case, was the land itself, its allowance as revenue expenditure has to be upheld. If, however, on the other hand, it is considered that this payment was towards, relinquishment of Moti Ram Bhalla's right in the partnership which he had entered into with the assessed for the purchase of land, then any consideration received for retirement from partnership or surrendering the right in the partnership must be treated as capital expenditure in the hands of the assessed. We need not dilate more on this latter proposition inasmuch as in a recent decision given by this court in the case of General Auto Parts Co. v. CIT : [1981]128ITR519(Delhi) (I.T.R. No. 8 of 1972, decided on December 12, 1979) it has been held that compensation paid to a partners on his retirement from partnership or surrendering his rights therein can be treated only as an expenditure of capital nature. The case law relied upon by the present assessed has been discussed in detail in that case.

33. From the side of the assessed, however, it has been pleaded that the present case wan not one of retirement of Moti Ram Bhalla from the partnership or his surrendering the rights in the same. This was pleaded to be irrespective of whether he had stated so in his statement before the ITO. After all it was not that he was misconstruing the nature of the payment but the real character of the transaction had to be kept in view. But for Moti Ram Bhalla's conduct allowing the assessed to exclusively effect the purchase of the entire lands, this stock-in-trade, it was pleaded, would not have come to the assessed's avail. That land itself was not capital in nature as the nature of business involved its development into plots and their sale. The same, it was urged, had to be treated as its stock-in-trade and, thereforee, any expenses incurred for its acquisition were revenue in nature.

34. So far as the services rendered by Moti Ram Bhalla, it was not disputed that in the agreement of sale which the assessed entered into with Pt. Lila Ram on June 11, 1958, there was no mention that he had acted as a broker. In the final sale deed which was later executed in the assessed's favor, there was again no mention of his having so acted. There was no other document executed which could show that he was required to act as broker or did act as such. However, it has been pleaded that the cumulative effect of the entire circumstances should be taken into consideration and if this was done, it became apparent that Moti Ram Bhalla played a significant role in inducing Pt. Lila Ram to sell his lands. Initially, the sale was to be in favor of Moti Ram Bhalla and Prem Raj Sharma, then in favor of the partnership between them and the assessed, and finally in favor of the assessed exclusively. But for Moti Ram Bhalla and Prem Raj walking out of the scene, the exclusive sale in favor of the assessed would not have materialised. For these services rendered, it was urged, he was paid his due commission.

35. From the side of the revenue on the other hand it has been pleaded that the payment effected to Moti Ram Bhalla were simplicities as consideration for his relinquishing his rights in the partnership. It was claimed that there was a basic distinction between acquiring stock-in-trade and acquiring an exclusive right to acquire stock-in-trade. The present case was stated to be of the latter category and any expenses incurred in this direction should be treated as capital in nature.

36. As observed by the Supreme Court in the case of Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT : [1965]56ITR52(SC) , in considering whether an expenditure is revenue expenditure, the court has to consider the nature and the ordinary course of business and the objects for which the expenditure is incurred. The question whether a particular expenditure is revenue expenditure incurred for the purpose of the business must be viewed in the larger context of business necessity or expediency. If the outgoing expenditure is so related to the carrying on or conduct of the business that it may be regarded as an integral part of the profit-earning process and not for the acquisition of an asset or a right of a permanent character, the possession of which is a condition to the carrying on of the business, the expenditure may be regarded as revenue expenditure. In a later decision of Gotan Lime Syndicate v. CIT : [1966]59ITR718(SC) , the Supreme Court observed that none of the tests laid down in the various authorities to distinguish between revenue expenditure and capital expenditure is exhaustive or universal. Each case must depend on its own facts and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases one should avoid the temptation to decide by matching the colour of one case against the colour of another.

37. Now, a careful perusal of the background of the facts of the present case shows that initially it was Moti Ram Bhalla and Prem Raj who had agreed to embark upon the colonization business and effect purchase of land from Pt. Leela Ram for developing that into plots. So far as the Leela Ram was concerned he had agreed to sell and his course of conduct shows that he was too keen to dispose of the land whosoever was the buyer. Subsequently when the assessed joined in partnership with Moti Ram Bhalla and Prem Raj, Leela Ram had no reservation in executing an agreement of sale in favor of this partnership. Later, when both Moti Ram Bhalla and Prem Raj Sharma decided to walk out from the partnership, Leela Ram readily agreed to effect the sale of land in favor of the assessed. The agreement of sale was executed in the assessed's favor on the same day when both Moti Ram Bhalla and Prem Raj came out of the partnership by dissolving the firm. Immediately on the execution of the agreement of sale in favor of the assessed, the latter acquired an independent right qua Leela Ram to specifically enforce that sale. It is not shown that thereafter Moti Ram Bhalla in any manner performed any service towards the assessed in the final execution of the sale deed. Rather, it appears that both Moti Ram Bhalla and Prem Raj had valuable rights under the agreement of sale which had been executed by Leela Ram in favor of the partnership in which they and the assessed were partners. They were required to go out of this partnership and naturally they expected some consideration or reward for the same. Colonization business in Delhi, in view of the rising demands for plots, was a fairly profitable proposition. It was, thereforee, not without basis that Moti Ram Bhalla throughout claimed that the money that he was getting was for the relinquishment or surrender of his rights in the partnership and retirement from the firm.

38. The Tribunal has observed that on the dissolution of the partners with Prem Raj and Moti Ram Bhalla, the assessed acquired full rights the land which were its stock-in-trade. There was a basic infirmity in this conclusion inasmuch as on June 11, 1958, the lands had not been purchased. Rather they were purchased much later. There was, thereforee, no question of they being treated as stock-in-trade on June 11, 1958, when Moti Ram Bhalla and Prem Raj left the partnership and the assessed exclusively entered into an agreement of sale with Lila Ram. After the execution of this agreement of sale, the assessed could specifically get that enforced in law. No intervention of Moti Ram Bhalla was required for this purpose nor is it shown that he thereafter rendered any service in that direction. Whatever efforts Moti Ram Bhalla and Prem Raj might have made in initially inducing Leela Ram to sell his lands to them were for their own benefit. They had then got the agreement of sale executed in their favor on October 26, 1956. It was only subsequently that the assessed chose to join them to take the benefit of that agreement of sale which they had procured in their favor. For joining in this partnership or for inducing them to retire from this partnership, whatever investment was made by the assessed, had to be treated as one of capital in nature.

39. We, thereforee, answer the second question in the negative and in favor of the revenue.

40. Looking at the circumstances of the case, we make no order as to costs.

S. Ranganathan, J.

41. Of the two questions referred to this court I concur with the answer proposed by my learned brother to the first question. But I regret that I am unable to agree with the answer proposed by him to the second question.

42. So far as the first question is concerned, the facts have been set out in the judgment of my learned brother and need not be repeated. There can be no doubt that when the sale deed was executed and registered the assessed became the owner of the property in question. Shri Bishamber Lal referred to a passage in Mull's Transfer of Property, 6th edn., p. 305, and submitted that even in the case of a sale of immovable property could be the intention of the parties that the title should pass at a future date. But in the present case our attention has not been drawn to any clause or condition of the sale deed which postponed the vesting of the property in the assessed. The assessed, thereforee, became the owner of the property and was, thereforee, liable to be assessed in respect thereof under the provisions of s. 22 et seq.

43. Counsel for the assessed placed reliance on the decisions of this court and the Supreme Court in the case of R. B. Jodhamal Kuthiala : [1968]69ITR598(Delhi) and R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 750 . The Supreme Court had to decide which of the two persons was the owner of a property, whether it was the person who had the right of control and disposition over it or whether it was the person with whom there remained nothing but the mere husk of title, viz., a residual beneficial interest. Pointing out that the property could not be owned by two persons, the court held that, for purposes of income-tax, the owner must be that person who can exercise the right of the owner, not on behalf of the owner, but in his own right. In the present case there is no such question of a conflict between two persons. On the other hand, it is clear that the vendor ceased to be the owner after the execution and registration of the sale deed and, if the assessed's case that he is not the owner is accepted, then we will reach the anomalous position of a property with no owner at all. That not being possible, there can be no doubt that it is the assessed who is the owner of the property.

44. Counsel for the assessed also relied on certain observations of the Full Bench of this court in the above case and contended that even though the assessed may be the owner of the property for purposes of property law, as far as the I.T. Act is concerned, a person can be treated as owner only if he is 'in a position to earn income from the property'. This argument cannot be accepted for two reasons. Firstly, the Supreme Court does not appear to have approved of this line of reasoning of the High Court. Though the revenue addressed an argument before it that the 'owner' for the purposes of the Act, would be the person entitled to the income, the Supreme Court rested its decision on a different basis. That apart, even on that argument, the assessed would be the owner, for, it is certainly entitled to the income from the property. Secondly, as pointed out by my learned brother, the Full Bench of this court, while making the observations relied upon, has also qualified the statement by making it clear that person would be liable to tax under s. 9 where his incapacity to earn income from the property arises either because he has placed himself voluntarily in that position or because on account of some special circumstances he is unable for the time being to enjoy any income from the property even though he has dominion or control over the property. The present case falls within these exceptions. The clause permitting the vendor to continue to live in the property, though contained in the sale deed itself, is nothing more than the result of a voluntary arrangement between the vendor and the assessed for which, as pointed out by my learned brother, there could have been a number of consideration. The position can be no different than in a case where, subsequent to the sale deed, the assessed enters into an agreement with the previous owner to permit him to reside in the property free of rent for a limited period of time. The clause or license given to the previous owner to occupy the property free of rent is only a mode of exercise by the assessed, in a particular manner, of his right of exploitation of the property. Even in a case where the owner of the property is under a legal, superimposed disability from letting out the property and deriving any income there from, it has been held that the liability to tax subsists (See D. M. Vakil v. CIT : [1946]14ITR298(Bom) , Sir Currimbhoy Ebrahim Baronetcy Trust v. CIT : [1963]48ITR507(Bom) , and CIT v. Biman Behari Shaw Shebait : [1968]68ITR815(Cal) . The present case is not distinguishable in principle from these decisions and I agree, thereforee, with my learned brother that the department was entitled to tax the assessed in respect oft he annual value of the premises in question.

45. The second question relates to the deductibility of a payment of Rs. 10,901 made by the assessed to one M. R. Bhalla which is a part of a total sum of Rs. 43,861 claimed to be payable to him by the assessed in connection with the purchase of certain lands in Bahapur and Tughlakabad villages. It is not necessary to repeat all the facts relating to this question which have already been set out in the order of my learned brother. I would, however, like to emphasis the chronology of the relevant transactions :

26-10-56 :

46. Bhalla and Prem Raj, son of Pt. Lila Ram, enter into an agreement with Pt. Lila Ram to purchase certain lands at Rs. 1,025 per bigha kham.

47. In respect of the earnest money of Rs. 2 lakhs, each of the two vendees execute a promissory note for Rs. 1 lakh in favor of the vendor.

18-12-56 :

48. Bhalla and Prem Raj enter into a partnership for carrying on business of buying and selling lands and developing the same by themselves or jointly with others under the name and style of L. M. G. Colonizers and Traders.

2-1-57 :

(i) The firm of L. M. G. Colonizers (that is to say, the two partners thereof) enter into a partnership with the assessed-company for the same purpose. The partnership deed specifically mentions that this has been done with the consent of Pt. Lila Ram and that a new agreement of sale in supersession of the earlier agreement was being entered into.

(ii) The newly constituted partnership enters into an agreement with Pt. Lila Ram to buy the said lands. An earnest money of Rs. 4 lakhs is agreed upon. Since Bhalla and Prem Raj had already Rs. 2 lakhs by way of promissory notes, the assessed-company pats a sum of Rs. 2 lakhs towards the purchase of the said land.

11-6-58 :

(i) The partnership between the assessed-company and LMG Colonizers is dissolved. The deed of dissolution made it clear that the parties have agreed to cancel the agreement dated January 2, 1957, with L. R.

(ii) The assessed-company and L. M. G. Colonizers enter into an agreement with Pt. Lila Ram by which the previous agreement dated January 2, 1957, is refunded by the sellers to the purchasers.

(iii) The assessed-company enters into an agreement with Pt. Lila Ram to purchase the lands in question.

(iv) The assessed-company writes a letter to Prem Raj stating that, in lieu of his services in connection with the execution of the agreement to sell dated June 11, 1958, between the assessed-company and Pt. Lila Ram the assessed agrees to allot to him 22 plots of land in the proposed colony charging a price of Rs. 9 per square yard including the cost of development.

11-4-59 :

49. The assessed-company pays Bhalla a sum of Rs. 43,861.50 a 2% on Rs. 21,93,058 which was the total consideration for which the company has purchased the land for Pt. Lila Ram. The receipt dated 11, 1959, states that the payment was on account of full and final payment of Bahapur land purchase commission account.

50. The amount paid by the assessed-company to Bhalla has been disallowed by the ITO on the ground that it had been paid to make Bhalla surrender his interest in the partnership. It has been disallowed by the AAC on the ground that it was a payment made in consideration of Bhalla's retirement from the firm and that there was no evidence to indicate any agreement, written or verbal, between the assessed and Bhalla which cast an obligation on the appellant to pay any brokerage to him. A reference has also been made to the absence of any reference to Bhalla in the sale deed between the company and Pt. Lila Ram as indicating that he had no hand in the transaction at all. The Tribunal has, however, held that the assessed was under an obligation to Bhalla in the same way as to Prem Raj and that the payment was neither a commission or other payment made with a view to acquire right to the stock-in-trade of the assessed, land, for purposes of colonisation.

51. In my opinion, the conclusion reached by the Tribunal is a conclusion of fact based on the material on record which does not call for interference in a reference under the I.T. Act. It is not the department's case that Bhalla was in any way connected with the shareholders or directors of the assessed-company and that the payment made to him has been made on personal grounds. It is common ground that the payment was made to him in the above circumstances and it has to be considered whether the circumstances disclose any commercial justification for the payment to him of a certain sum of money based on the consideration for which the lands were purchased by the company. If the payment can be related to a part played by Bhalla in the transactions then it would not make any differences whether the company had entered into an antecedent contractual obligation to pay him any remuneration for his help or whether it was paid voluntarily, because it would be a payment based on grounds of commercial expediency. It appears to me that to say that Bhalla had no part to play in the transactions at all is to ignore the entire sequence of events. For the same or similar part played by Prem Raj he had been allotted certain lands by way of compensation apparently at a concessional rate. I see no grounds to differ from the Tribunal's conclusion that both Bhalla and Prem Raj had helped in enabling the company to acquire the lands from Pt. Lila Ram and that they have been compensated in different ways for the respective parts played by them. So far as Prem Raj is concerned, the part played by him is a little more obvious because he happens to be the son of Pt. Lila Ram. But Bhalla's help and co-operation at the various stages of the transaction which eventually culminated in the acquisition by the assessed of its stock-in-trade, namely, the lands, which Pt. Lila Ram was in a position to sell, was equally indispensable.

52. Long before the company entered into the picture, Bhalla and Prem Raj had acquired an option to purchase the lands from Pt. Lila Ram. From the fact that the earnest money was stipulated in the form of promissory notes it appears that these two were only intermediaries through whom Pt. Lila Ram could sell the plots to his best advantage. But, whatever it may be, by virtue of the agreement to purchase, both Bhalla and Prem Raj had a valuable right which could defeat the interests of any other person who may subsequently acquired the property. This right of theirs was subsequently pooled into a partnership first between themselves and, later on, between them and the assessed-company. It was at this stage that the assessed entered into the transaction and by entering into the partnership and then into an agreement with Pt. Lila Ram, the company was able to acquire a right to purchase the property along with these two persons. In other words the assessed's right to purchase its stock-in-trade at this stage was not exclusive but was shared by it with Bhalla and Prem Raj.

53. It was the object of the assessed to acquire this right exclusively. It could have achieved this object in several ways. For example, it could have prevailed upon Bhalla and Prem Raj (for a consideration or otherwise) to surrender their rights in the partnership. If the transactions had been put through in that manner and if Bhalla and Prem Raj had been paid a compensation for giving up their rights in the firm or for enabling the company to acquire their interests in the partnership, I think, the department would be right in saying that such payment made would be expenditure of a capital nature, as has been held by us in General Auto Parts Co. v. CIT (ITR No. 8 of 1972 decided on December 12, 1979) [since reported at p. 519 (supra) of this volume] referred to by my learned brother. But that was not the transaction put through by the parties and, in any opinion, it is not possible for the department to say that the assessed-company has acquired the interests of Bhalla or Prem Raj in the firm. This is because the facts disclose that the firm was dissolved. The dissolution was unconditional. The deed of dissolution is not shown to have made any provision for the take-over of the rights or assets belonging to the firm by the assessed-company. In fact it could not be so, for one thing, the 'asset' of the firm was the valuable agreement which it had entered into on January 2, 1957, with Pt. Lila Ram and it is common ground that on the same date when the partnership was dissolved, this agreement dated January 2, 1957, was also cancelled. The result was that the firm disappeared and the contract which the firm possessed was also cancelled. thereforee, there was and could have been no payment made by the assessed to Bhalla or Prem Raj in consideration of their giving up their rights in the firm. This ground of disallowance, thereforee, is, in my opinion, incorrect, though Bhalla may have stated, loosely, that he was paid for surrendering his interest in the partnership.

54. The cancellation of all the agreements that had been entered into with Pt. Lila Ram left matters at large. The agreement dated October 29, 1956, the subsequent agreement dated December 18, 1956, the next agreement dated January 2, 1957, all of them stood cancelled. But we find that on the same date, i.e., June 11, 1958, the assessed-company entered into an agreement with Pt. Lila Ram to purchase the land in question. Can it be said that this is a wholly independent transaction between the company and Lila Ram and that the help of Bhalla and Prem Raj was not needed by the company for this Can it be said that they agreed to remove themselves or help the assessed without any consideration or co-operation I do not think it would be a reasonable inference in the circumstances to say so. The dissolution of the partnership, the cancellation of the agreement dated January 2, 1957, and the drawing up, agreement dated June 11, 1958, with Pt. Lila Ram are all simultaneous. This shows that all these transactions have been concurrently decided upon. The parties, it is clear, decided that the assessed-company should be enabled to purchase the property and that Bhalla and Prem Raj should move out of the picture. Immediately prior to June 11, 1958, Bhalla and Prem Raj had rights which were an obstacle in the path of the company and they agreed to remove themselves so as to make the way open for the company to purchase the property. But for their agreeing to do so, the company could not get the exclusive right and it is equally manifest that they agreed to do so only because they were compensated adequately. This is clear from the letter addressed by the company to Prem Raj on June 11, 1958, itself. It is clear that Prem Raj had an important part to play because he was the son of Pt. Lila Ram and that unless he had been compensated in some manner the assessed would not be enabled to acquire the land from Pt. Lila Ram. Bhalla, though of lesser importance, was also a person who had rights similar to those of Prem Raj as a result of the earlier transactions. His clearance was also needed before the company attained its objective. Else, he could create difficulties for the assessed in obtaining a clear title to the property. Perhaps because his influence with Lila Ram was not as weighty as that of Prem Raj, the assessed did not compensate him immediately but waited until the transaction of purchase was put through and then paid him a commission based on the purchase price. I am unable to see how the effect and consequences of his being a party to the earlier agreement can be brushed aside as of no significance. It is nobody's case that he was a mere stooge or benamidar for Pt. Lila Ram or for Prem Raj himself. If the transaction necessitated compensating Prem Raj, I do not see why a payment of commission to Bhalla was not warranted by business considerations. To my mind it appears that once it is conceded that Bhalla was not in any way connected with the company and the payment was not made for some oblique purpose, it is fairly clear that he has been paid only for having withdrawn from the transaction and agreed not to insist upon the contractual rights which he previously had as the result of the agreements with Pt. Lila Ram to which he was a party. I am unable to agree that Bhalla had no part to play and that he had rendered no services to the company at all.

55. It has been suggested that Pt. Lila Ram was only too anxious to sell the land and was quite ready to deal with the assessed-company directly. I am unable to agree with this suggestion. There is no material to support this suggestion. On the contrary, it seems to me that the assessed could not have got the contract without the active co-operation and help of Bhalla and Prem Raj. The very fact that Pt. Lila Ram originally entered into an agreement with Bhalla and Prem Raj for selling the lands with Bhalla and Prem Raj executing promissory notes for Rs. 2 lakhs shows that these two persons were introduced as intermediaries in the process of sale. When these two persons entered into a partnership with the assessed, it was considered necessary by the parties to state that the partnership had been formed with the concurrence of Pt. Lila Ram. This and the payment of Rs. 2 lakhs by the company as earnest money shows that Pt. Lila Ram was agreeable to sell the land to the company only in view of its having entered into a partnership with Bhalla and Prem Raj. The simultaneity of the transactions put through on June 11, 1958, clearly show that it was a joint deal by all of them. To me the conclusion seems irresistible that the company could not have acquired exclusive rights in respect of these lands but for the fact that Bhalla and Prem Raj agreed to walk out of the picture having received a certain amount of compensation. Whether that compensation is described as a commission or brokerage or remuneration for services, as pointed out by the Tribunal, the fact remains that it is nothing but a payment made by the company in order to acquire its stock-in-trade, namely, land.

56. It might be asked why if the payment was made by the assessed to enable it to acquire the land free of the claims of Bhalla and Prem Raj, it cannot be treated as a payment made to acquire their interests in the partnership and hence capital in nature This conclusion, however, cannot follow, for, it is well settled that in income-tax matters, on has to consider not the substance but the legal effect of the transactions as actually put through by the parties. Very often the same result can be achieved in two ways, one of which would attract tax and another not.

57. And it is open to the parties to adopt the course of action which would not attract tax. In the present case, the assessed could have acquired the exclusive right to purchase the land in two ways. One was that, after the partnership was formed, the assessed could have acquired the shares or interests of Bhalla and Prem Raj in the partnership for a consideration. If that had been done the payment, as indicated earlier, might have been liable to disallowance as being capital in nature. But this is not what was done. The parties agreed that the partnership should be dissolved and that the earlier agreement between the firm and Pt. Lila Ram should be cancelled. When the transaction was put through in this manner, no acquisition of the rights or interests of Bhalla in the firm is involved. All that has happened is that certain persons, who might otherwise have been an obstacle in the way of the assessed acquiring the land, agreed to eliminate themselves, obviously in lieu of a consideration received thereforee. The business of the assessed is to acquire lands. This business of a colonizer also includes entering into contract for the purchase of land. Where it enters into such a contract jointly and then gets an exclusive right in respect of that contract by making a payment, it requires no capital asset. Any payment it makes in order to eliminate the other persons interested in the contract and to secure an exclusive contract for itself would clearly be a payment made in the ordinary course of business as such a colonizer.

58. It seems to me, thereforee, looking as the sequence of events from a commercial and practical point of view that the sum of Rs. 10,901 was a revenue expenditure laid out by the assessed wholly and exclusively for the purpose of the business. In my opinion, thereforee, the second question has to be answered in the affirmative and against the revenue.

59. I agree with the order of my learned brother that there should be no order as to costs.

V.S. Deshpande, C.J.

60. On a difference of opinion between Ranganathan and Khanna JJ. :

The question

61. The question referred to me for consideration under the proviso to s. 66A of the Indian I.T. Act, 1922, corresponding to s. 259(1) of the I.T. Act, is as follows :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a sum of Rs. 10,901 paid by the assessed-company to Shri Moti Ram Bhalla was an expenditure of revenue nature and hence allowable in the computation of the total income of the assessed-company ?'

62. The relevant facts and circumstances of the case are as follows :

2-1-57.

(I) A firm called L. M. G. Colonizers consisting of two partners, Prem Raj and Moti Ram, entered into a partnership with the assessed-company, Delhi Land and Finance Housing Construction Private Ltd., for the purpose of buying land from one Lila Ram as a part of the general business of buying, developing and selling land.

(II) The newly constituted partnership entered into an agreement with Lila Ram to buy certain lands. An earnest money of Rs. 4 lakhs was agreed to be paid by the new partnership to Lila Ram. Since Prem Raj and Moti Ram had already given Rs. 1 lakh each by way of promissory notes, that is, a total of Rs. 2 lakhs, as the earnest money to Lila Ram, the assessed-company as a new partnership paid a sum of Rs. 2 lakhs towards the purchase of the said land to Lila Ram.

11-6-58.

(I) The agreement of January 2, 1957, for the purchase of land from Lila Ram was cancelled by the L. M. G. Colonizers including Prem Raj and Moti Ram and the assessed-company on the one side, and Lila Ram, on the other side as parties to the agreement cancelling the agreement of January 2, 1957.

(II) The new partnership formed on January 2, 1957, between L. M. G. Colonizers as one partner and the assessed-company as the other partner was dissolved. In clause 2 of the deed of dissolution of the partnership it was expressly mentioned as follows :

'The agreement of sale between the said parties to the deed of partnership on the one hand having already been cancelled by an agreement, dated 11th June, 1958, and the parties having recovered from the said Pt. Lila Ram the respective sums due to them from Pt. Lila Ram on amount of earnest money paid under the said agreement dated 2nd January, 1957, there is no other account of partnership to be settled between the parties to the said deed of partnership left outstanding and nothing is due from either party to the other on account of the said partnership which is hereby dissolved.

(III) The assessed-company entered into an agreement with Lila Ram to purchase lands which had been the subject-matter of the agreement, dated January 2, 1957, cancelled by the second agreement of June 11, 1958.

(IV) The assessed-company writes a letter to Prem Raj stating that in view of his service in connection with the execution of the new agreement entered into by the assessed-company with Lila Ram on June 11, 1958, the assessed-company agrees to allot Prem Raj 22 plots of land in the proposed colony charging a price of Rs. 9 per sq. yd. including the cost of development.

11-4-59.

63. The assessed-company paid a sum of Rs. 43,859.50 to Moti Ram as 2% of Rs. 21,93,058 which was the total consideration for which the assessed-company purchased the land from Lila Ram by a sale deed subsequent and in pursuance of the agreement of June 11, 1958, between the assessed-company and Lila Ram. The receipt dated April 11, 1959, states that the payment was on account of full and final payment of Bahapur land purchase commission account.

64. The Income-tax Appellate Tribunal in the statement of case, para. 9, also referred to the oral evidence of Moti Ram before the ITO stating that Moti Ram took commission from the D. L. F. and left the partnership. Moti Ram further stated as follows :

'I charged commission on account to deal with D. L. F. D. L. F. paid me commission and agreed to give 22 plots to Mr. Prem Raj as compensation.'

65. In the final order of the Tribunal in the appeal before it, in para. 14, it is stated as follows :

'According to the sworn statement of Moti Ram Bhalla recorded by the Income-tax Officer on March 8, 1965, he and Prem Raj left and D. L. F. alone executed the agreement with Pt. Lila Ram for purchasing the land 'for surrendering my interest to D. L. F.'. The D. L. F. paid him brokerage and similarly D. L. F. also agreed to give 22 plots to Prem Raj.'

66. On these facts and circumstances the decision of the Tribunal was as follows :

'In the instant case the net result of the transactions referred to above, which preceded the agreement dated June 11, 1958, was that the right to purchase the lands which had been acquired by three parties, viz., the assessed-company on the one part and the two partners, Prem Raj and M. R. Bhalla of the other part, came to be acquired exclusively by the assessed. On the facts of the case, it is clear that the payment was either a 'commission' payment or payment made with a view to acquire exclusive right to the stock-in-trade of the assessed, land, for the purpose of colonization. We are of the considered opinion that the decision relied on by the Appellate Assistant Commissioner are inapplicable and that the principles laid down by the Madras High Court in the two decisions referred to above apply. Accordingly, we hold that the payment in question is an item of revenue expenditure, accept the assessed's claim and delete the addition of Rs. 10,901 in the assessment.'

Question of law

67. In computing the profits and gains of business on which tax was payable by the assessed, deduction of the amount of Rs. 10,901 was sought by the assessed under s. 10(2)(xv) of the old Act, which is as follows :

'Any expenditure (not being an allowance of the nature described in any of the clause (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessed) laid out or expended wholly and exclusively for the purpose of such business, profession or vacation :....'

68. The corresponding section of the new Act is s. 37(1), which is as follows :

'Any expenditure (not being expenditure of the nature described in sections 30 to 36 and section 80VV and no being in the nature of capital expenditure or personal expenses of the assessed) laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'.'

69. Two questions of statutory construction arise, namely :

1. Whether this expenditure was laid out wholly and exclusively for the purpose of business and

2. Even if it was so, was it in the nature of capital expenditure

Question No. 1

70. On January 2, 1957, the L. M. G. Colonizers consisting of two partners, Prem Raj and Moti Ram, entered into a partnership with the assessed and on the same date this new partnership entered into an agreement with Lila Ram for the purchase of land. This agreement of the new firm with Lila Ram was an asset or property of the partnership. In view of s. 54 of the Transfer of Property Act, the agreement of purchase did not create an interest in the land in favor of the purchaser, but even as an agreement it conferred a valuable right on the firm to the purchase of this land from Lila Ram. This agreement could have been specifically enforced against Lila Ram under the Specific Relief Act if that became necessary.

71. On June 11, 1958, the L. M. G. Colonizers acting by its two partners, Prem Raj and Moti Ram, on the side, and the assessed on the other side, entered into another agreement with Pt. Leela Ram, the seller of the land, and all of them cancelled the previous agreement among the same parties which had been entered into on January 2, 1957. This cancellation was immediately followed by the dissolution of the firm of the L. M. G. Colonizers and the assessed and also by the assessed entering into a new agreement of purchase with Pt. Leela Ram for the exclusive benefit of the assessed and to the trial exclusion of Prem Raj and Moti Ram. The sum total of these transactions was that the two partners, Prem Raj and Moti Ram, agreed to convert the joint benefit of the agreement of purchase, dated January 2, 1957, into an exclusive benefit of the assessed accruing from the new agreement of purchase, dated June 11, 1958. According to Lindley on Partnership, 14th Edn., pp. 457 and 460, such an agreement among the partners is valid particularly because the agreement was not merely executory but was actually executed, that is to say, that the joint benefit of Prem Raj, Moti Ram and the assessed was actually converted into the exclusive benefit of the assessed.

72. Consideration was agreed to be paid by the assessed to Prem Raj on June 11, 1958, by a letter of that date. No consideration was agreed to be paid to Moti Ram. Not only the cancellation deed is silent about the payment of any consideration, but the dissolution deed of June 11, 1958, actually stated that the purchase agreement and the partnership deed of January 2, 1957, having been already cancelled by the cancellation deed of June 11, 1958, and Prem Raj and Moti Ram and the assessed having already received back the earnest money which had been paid to Pt. Leela Ram under the previous agreement of purchase, there was no other account of the partnership to be settled and nothing was due from either party to the other. In view of this written agreement even oral evidence that anything was to be paid to Moti Ram would have been inadmissible.

73. The parties were aware of this legal position. No case was set up either by the assessed or by Moti Ram that anything was agreed to be paid to Moti Ram by the assessed for the good turn which Moti Ram did to the assessed by agreeing to convert the joint benefit of the agreement of purchase, dated January 2, 1957, into the exclusive benefit accruing to the assessed alone by the new agreement of purchase, dated June 11, 1958. The conclusion of law is that the transaction of June 11, 1958, came to an end and nothing was to be paid to Moti Ram by the assessed for that transaction.

74. On April 11, 1959, the assessed pays this sum of Rs. 10,901 to Moti Ram. Moti Ram says that this was done because of what Moti Ram had done for the assessed in participating in


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