COMMISSIONER OF INCOME TAX Vs. AUTO DISTRIBUTORS LTD

JUDGEMENT

(1.) In this reference made at the instance of the Revenue, the following questions have been referred by the Tribunal for the opinion of this court under Section 256(1) of the Income-tax Act, 1961:

(2.) Whether, on the facts and in the circumstances of the case and in view of the ratio of the decision of the Calcutta High Court in Chloride India Ltd. v. CIT [1981] 130 ITR 61, the Tribunal was justified in law in holding that the expenditure of Rs. 6,96,288 incurred for acquiring a right to vacant possession is an allowable business expenditure ?" 2. The facts as found by the Tribunal are as under : This reference relates to the income-tax assessment of the assessee-company for the previous year ending January 31, 1983, corresponding to the assessment year 1983-84. The assessee-company is engaged, inter alia, in the business of taking properties on lease and letting these out for the purpose of earning income by way of rent. In the course of its aforesaid business, the assessee-company took on lease premises at 18A, B and C, Jawaharlal Nehru Road, Calcutta (commonly known as "FIRPO Building"). The assessee-company had let out different portions of the said property to various persons and the entire income by way of rent derived by the assessee-company was being assessed to tax in its hands as business income. A portion of the first floor of the said FIRPO building measuring about 3,600 sq. ft. and 6,266 sq. ft., respectively, had been let out by the assessee-company to Sri Diresh Chakraborty in terms of two separate agreements executed on April 9, 1981, and July 27, 1981, respectively. Under both these two agreements, the tenant, Sri Chakraborty, had the right to sub let the premises let out to him by the assessee-company. In terms of the two agreements dated July 27, 1981, which were executed in respect of 6,266 sq. ft. in the first floor of the said premises, the tenant, Sri Chakraborty, had made a deposit of Rs. 4 lakhs with the assessee-company.

(3.) It appears that on or about February 1, 1992, the tenant, Sri Chakraborty, entered into an agreement with Laxmi Textile Mills Pvt. Ltd., for obtaining a loan of Rs. 10 lakhs. In order to secure the said loan, the tenant, Sri Chakraborty, handed over the vacant possession of 6,266 sq. ft. in the first floor of the said FIRPO building to Laxmi Textile Mills Pvt. Ltd., and also offered his tenancy rights held by him in the first floor of the said FIRPO building in terms of the said two agreements dated April 9, 1981, and July 27, 1981. The tenant, Sri Chakraborty, also executed an irrevocable power of attorney in favour of the said Laxmi Textile Mills Pvt. Ltd. On May 29, 1982, Sri R.L. Gaggar, solicitor and advocate, acting for the said Laxmi Textile Mills Pvt. Ltd. issued a public notification in the newspaper indicating for general information that his clients, Laxmi Textile Mills Pvt. Ltd., were in exclusive possession of 6,266 sq. ft. of first floor of FIRPO building in place of Sri Chakraborty. On June 3 and 4, 1982, the tenant, Sri Chakraborty, sought to revoke his tenancy rights in terms of the two tenancy agreements with the assessee-company executed on April 9, 1981, and July 27, 1981, respectively. Sri Chakraborty requested the assessee-company to hand over the balance of his security deposit after due adjustments of his outstanding including arrears of rent, etc., to Laxmi Textile Mills Pvt. Ltd.