The estimated value of an assessee's obligations to the landlord and sub-lessees can be allowed as a deduction in computing the income from sub-leasing lands only if the obligations have accrued in the relevant years and can be properly estimated.

SABYASACHI MUKHARJI, J.

( 1 ) IN this matter, as the assessee did not appear, we requested Mr. Sumit Chakrabortti, learned advocate of this court, to appear as amicus curiae and help us in answering the question.

( 2 ) HE has appeared and made his submission. We express our gratitude for the assistance rendered by him.

( 3 ) THIS reference under Section 256 (1) of the I. T. Act, 1961, poses for our consideration the following question :"whether, on the facts and in the circumstances of the case and on a proper construction of the agreement of sub-leases, the Appellate Tribunal was justified in holding that the estimated value of the assessee's obligations to the landlord and sub-lessees should be allowed as a deduction in computing the income of the assessee-company from the business of sub-leasing in lands ?"

( 4 ) THE assessee is a private limited company. The reference relates to the assessment years 1958-59, 1959-60 and 1960-61. The assessee-company was formed on 3rd September, 1956, with the object of dealing in and letting out properties. On the 19th October, 1956, which fell within the assessment year 1957-58, viz. , an assessment year prior to the relevant assessment year for our consideration, the assessee-company took on 91 years' lease a plot of land more than 7 bighas for the purpose of constructing a mansion on a portion of the land to earn rent therefrom and to sublease the other portion of the land after developing it and dividing it into plots. The assessee-company spent Rs. 67,484 on development of the land which was divided into plots and sub-leased for periods up to 90 years to various sub-lessees. From these sub-leases, the assessee-company had received what was called advance lease rent and salami during the previous years relevant to those assessment years from the various sub-lessees as follows:

Assessment year Advance lease rent realized

Rs .

Total

Rs .

1958-59 2,18,840 40,792 2,89,632

Salami realised

Rs .

1959-60 41,240 2,421 43,661 1960-61 23,258 4,401 27,659 3,13,338 47,614 3,60,952  

 

( 5 ) IT was claimed by the assessee-company before the ITO that these amounts were capital receipts and, in any case, against these receipts the assessee-company had undertaken the liability to pay a lease rent of Rs. 9,600 per annum to the lessor and to incur expenses on providing street lights, sweepers, watchmen, maintenance of roads and common passage for the period of the sub-lease, i. e. , about ninety years, and since these liabilities together with the development expenses and salami paid to the lessor exceeded the realisations even on a proportionate basis for the area of the land leased out to the total area which had been developed there was actually a loss for each of the three years. It was further contended that the advance rent was received for the entire period of the sub-lease, i. e. , about 90 years and, therefore, only about 1/90th of the advance rent could be treated as an income of each year and on this basis also the rent for this year together with the premium received less the lease rent and premium paid and expenses incurred for the development and providing the amenities would result in a loss. The ITO, however, did not accept this contention and treated the entire receipts on account of the advance rent and salami less proportionate cost of land and development expenses as the assessee's income.

( 6 ) THE assessee went up in appeal before the AAC. He, however, agreed with the ITO and dismissed the appeals.

( 7 ) AGAINST these orders of the AAC, the assessee went up again before the Income-tax Appellate Tribunal. After considering the rival contentions, the Tribunal observed that the factual position was that the assessee had obtained a 91 years' leasehold right against the following consideration : (i) by making a lump sum payment of Rs. 40,000, (ii) by agreeing to pay a sum of Rs. 9,600 per year for 91 years, and (iii) by agreeing to construct a mansion on a p

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