R.V. Easwar, V.P. - (1.) THE assessee in this appeal is an individual deriving income from property and commission. For the year under appeal, he also declared income by way of capital gains, dividend etc. THE assessee was acting as commission agent for M/s. Continental Carriers, New Delhi and M/s. Continental Carriers (P.) Ltd., New Delhi. From these two concerns he derived commission of Rs, 27,57,232 and Rs. 39,92,378 respectively during the accounting year ended 30-4-1994 relevant to the assessment year 1994-95 which is the year under appeal. THE commission was derived at the rate of 1 per cent. He wanted the commission to be increased to 1.2 per cent M/s. Continental Carriers agreed to the assessee's request. However, Continental Carriers placed a condition. It stated that the assessee had to provide some more facilities such as an office and godown for the storing of cargo which should be in the vicinity of the International Airport at New Delhi. THE assessee agreed to this condition. THE arrangement was ultimately finalized like this. THE assessee was to construct the godown. Continental Carriers would provide the funds for the construction and adjust them against the commission payable to the assessee. This would be subject to the upper limit of Rs. 50,00,000. In other words, the assessee had agreed to bear not more than Rs. 50,00,000 as cost of construction of the godown. Fortunately for the assessee, his wife owned a plot of land near the international airport. She was willing to permit the godown to be put up in her land. This arrangement was reduced to writing to which we shall presently refer.
(2.) In accordance with the above arrangement construction commenced and an amount of Rs. 18,10,007 was provided by Continental Carriers towards the same. However, the DDA raised objections to the construction and ultimately the structure was totally demolished. The entire arrangement thus fell through. But as per the arrangement the amount spent by Continental Carriers on the construction was debited to the assessee's account by means of debit note raised against the assessee. In the return filed by the assessee, he claimed that the amount of Rs. 18,10,007 was a loss which arose in the course of his business and should accordingly by allowed as a deduction. The assessing officer rejected the claim. He firstly held that the structure which was demolised later by the DDA was the property of the assessee. He secondly held that the assessee derived a benefit or perquisite in the course of his business and the value thereof shall be assessed under section 28(iv) of the Act. He thirdly held that the assessee applied his commission income towards the construction, after it accrued to him. For these three reasons he held that the amount represented a taxable benefit arising to the assessee in the course of his business.
(3.) ON appeal, the Commissioner (Appeals) rightly addressed himself to the question whether the amount can be allowed as a loss suffered by the assessee in the course of business activity. After examining the arrangement between the assessee, his wife Smt. Kamlesh Rani and Continental Carriers, he held that the amount cannot be allowed a loss. He noted that if DDA had not demolished the construction the building would have been completed and the entire expenditure would have been debited to the assessee's account. The assessee's wife would have got only the rentals from the Continental Carriers for using the premises. Thus, according to the Commissioner (Appeals), the assessee would have given an enduring benefit to his wife in the shape of a godown. The Commissioner (Appeals) further noted that this was only a case of application of income after it accrued to the assessee in the sense that the expenditure was incurred on the construction out of the commission income which had already accrued to the assessee. He further observed that it was never intended that the assessee would suffer a loss. Any loss was only that of his wife since she could not get any rental income from the building which would have been constructed on her plot. For these reasons, the Commissioner (Appeals) upheld the view taken by the assessing officer.;