PATEL DESAI AND CO AND MEERA INDUSTRIES Vs. ASSISTANT COMMISSIONER OF INCOME TAX
LAWS(APH)-1992-3-82
HIGH COURT OF ANDHRA PRADESH
Decided on March 24,1992

PATEL DESAI AND CO.AND MEERA INDUSTRIES Appellant
VERSUS
ASSISTANT COMMISSIONER OF INCOME-TAX Respondents

JUDGEMENT

P. Venkatarama Reddi, J. - (1.)The petitioners in these two writ petitions seek issuance of writ of certiorari to quash the order of the Settlement Commission dated 17/06/1992, in so far as it relates to the assessment, year 1984-85 and its decision on the question of admissibility of development expenditure of Rs. 3,44,817. Both the petitioners are allied firms.
(2.)Among the various items dealt with by the Settlement Commission, the transaction relating to Rasoolpura property is one. The owners of the plot entered into an agreement with the petitioners, according to which the petitioners were allowed to develop the plot and to construct the buildings and the petitioners were authorised to let out the buildings during the period of agreement which is stipulated to be eleven years from 1/01/1984. The terms and conditions of the agreement have been adverted to by the Settlement Commission. According to the said terms, the cost of construction shall be borne by the petitioners; however, such construction shall be deemed to have been carried out on behalf of the owners and the construction as and when made shall become the property of the owners. The petitioners will pay the owners "compensation" at the rate of 15 paise per square foot per month after the construction is completed. The petitioners were permitted to let out the constructed buildings and receive the rent. The rent received from these buildings was declared as revenue receipts and the expenditure for construction and development of the property was claimed as revenue expenditure. For some other assessment years also, the Assessing Officer did not allow the cost of construction as revenue expenditure under section 37 of the Income-tax Act (for short "the Act"). On appeal, the Tribunal held in favour of the petitioners that it was a deductible expenditure. Reference cases arising out of the said order of the Tribunal are being disposed of today. We have not answered the question referred to this court on its merits as we felt that the Tribunal did not record its conclusion on a consideration of the terms of the agreement and other relevant factors.
(3.)As far as the present writ petitions are concerned, the correctness of the conclusion reached by the Settlement Commission that the expenditure in question cannot be treated as revenue expenditure is assailed. The Settlement Commission was of the view that the petitioner started a totally new business venture and the expenditure incurred in putting up structures on the land was for the purpose of commencing a new income-earning activity, which had no connection with the existing business. The Commission was, therefore, of the view that the cost of construction incurred by the petitioners was in the nature of capital expenditure. The Commission referred to various decisions on the subject before reaching the impugned conclusion.
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