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SUPREME COURT OF INDIA
J.C. SHAH, S.M. SIKRI AND V. RAMASWAMI, JJ.
Commissioner of Income-tax Central, Calcutta and another (In both the Appeals), Appellants.
Versus
Amalgamated Development Ltd. (In both the Appeals), Respondents.
Civil Appeals Nos. 169 and 170 of 1968,
D/- 23-3-1967.
Advocates appeared
Mr. S. K. Mitra, Senior Advocate (Mr. S. K. Aiyar, Advocate and Mr. S. P. Nayyar, Advocate, for Mr. R. N. Sachthey, Advocate, with him), for Appellants (In both Appeals); Mr. A. K. Sen, Senior Advocate (Mr. B. P. Maheshwari, Advocate, with him), for Respondent (In both the Appeals).
INCOME TAX - Assessment - Sale of land - Consideration partly paid in cash and partly secured by mortgage - Whether entire consideration taxable as income - Whether expenditure incurred in developing land already sold by vendor deductible - Held, only actual cash receipts taxable - Expenditure incurred in developing land already sold by vendor deductible.
Fact of the Case:
The assessee company purchased the assets and liabilities of a firm, including land, goodwill, and certain other assets. The consideration was paid by the issue of shares to the vendor or its nominees. The assessee company sold certain plots of land, receiving a percentage of the price in cash and securing the balance with interest by creating a charge on the land purchased. The assessee company incurred expenses in developing the land, including expenses for plots sold by the vendor before the purchase. The Income-tax Officer disallowed the expenses incurred in respect of the lands already sold by the vendor and treated the entire consideration for the sale of plots as income, including the portion secured by mortgage.
Finding of the Court:
The High Court held that the entire consideration for the sale of plots was not taxable as income, but only the actual cash receipts. The High Court also held that the expenditure incurred in developing the land already sold by the vendor was deductible.
Issues: 1. Whether the entire consideration for the sale of plots was taxable as income, including the portion secured by mortgage? 2. Whether the expenditure incurred in developing the land already sold by the vendor was deductible?
Ratio Decidendi: 1. The consideration for the sale of plots was partly paid in cash and partly secured by mortgage. The mortgage was not equivalent to payment of cash. Therefore, only the actual cash receipts were taxable as income. 2. The expenditure incurred in developing the land already sold by the vendor was deductible because it was incurred in connection with the carrying on of the assessee company's business. The development of the entire land was an integrated process, and the expenditure could not be sub-divided into water-tight compartments.
Final Decision: The appeals were dismissed.
Judgment
RAMASWAMI, J. : These appeals are brought, by certificate, from the judgment of the Calcutta High Court, dated December 4, 1962 in Income-tax Reference No. 57 of 1958.
2. The respondent company purchased the assets and liabilities of the firm, Mugneeram Bangur and Co. (Land Department), hereinafter referred to as the firm on July 7, 1968 for a consideration of Rs. 34,99,300. The consideration was paid by the issue of shares to the vendor or its nominees in the share capital of the respondent company. The assets included land at cost, Rupees 12,68,268 as also goodwill and certain other assets subject to certain liabilities incurred by the firm. By the time the respondent company took over the land, the firm had sold a number of plots in respect of which part of the consideration money had been realised and for the balance Mortgage Bonds 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 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 total price will be paid at the time of execution of these presents and the payment of the balance will be secured in the manner hereinafter appearing. Now, This Indenture Witnesseth that in pursuance of the said Agreement and in consideration of the sum of Rs. 8,708-5-6 whereof the sum of Rs. 2,908-5-6 of lawful money of India to the said Vendor in hand well and truly paid by the Purchaser at or before the execution of these presents (the receipt whereof the said Vendor doth hereby as well as by receipt hereunder written admit and acknowledge) and the payment of the balance namely the sum of Rs. 5,800 being secured under a security deed of even date with these presents and executed by the Purchaser in favour of the Vendor creating First Charge upon the said land ;
"......................... And the said Vendor shall at all costs complete the construction of the said twenty-five feet wide road on the North of the said plot No. 35A and will also lay out the said surface drains by the side of the said road within a, year from the date hereof and will maintain the said road and drains in proper state or repairs and shall arrange for lighting the said roads with electric light till the same are taken over by Tollygunge Municipality...."; and,
" . . Memo of Consideration
By amount paid as earnest money on 5th August, 1948 By Cheque (part) No. 6985706 on The Bank of India Ltd. Rs. 501-0-0
on 30th January 1949. Rs. 2,407-5-6
By amount secured under Security Deed of even date being these presents and executed by the Purchaser in favour of Vendor.. Rs. .5,800-0-0
Rs. 8,708-5-6"
A specimen copy of the Mortgage Deeds is Annexure B to the Statement of the Case. The relevant provision of the said Mortgage Deed are to the following effect :
"... and by the said Indenture of Conveyance it was provided that the payment of the balance of the consideration money, namely, the sum of Rs. 5,800 owing by the said mortgagor to the said mortgagee shou
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