CHAKRAVARTTI, C.J. - (1.) THIS is a reference under s. 66 (1) of the Indian IT Act, made by the Calcutta Bench of the Tribunal and involves a fundamental question of some difficulty. Unfortunately, the treatment of the question by the authorities below has been of a somewhat summary character, presumably because it was raised and argued before them in a superficial form. But even if such was the case, there is hardly any justification for the Tribunal failing to realise at least what facts were required to be found and stated. The statement of the case is sketchy and bare and like most of the statements we have had to deal with during this session, has hardly any appearance of a case seriously stated.
(2.) THE question referred arises in the following way. THE assessee, the Calcutta Co. Ltd., deals in land and property and carries on that business in a form which has but recently made its appearance in this country. It buys land, develops it so as to make it fit for building purposes and sells it at a profit in plots. THE developments undertaken are, in the main, that roads are laid out, a drainage system provided and street lights installed and maintained. THE whole of the development is not carried out before the land is sold, nor is the whole of the sale price received in cash at the time of the sales. THE procedure followed is that when a plot is sold, the purchaser pays about 25 per cent of the purchase price in cash and undertakes to pay the balance with interest at a certain rate in ten annual instalments which he secures by creating a charge on the land purchased. THE company, in its turn, undertakes to carry out the developments within six months from the date of the sale but that time, as was stated before us, is not of the essence of the contract and what the company really undertakes is to carry out the developments within a reasonable time. THE undertaking is incorporated in the deed of sale itself, whereas the security is given by the purchaser by means of a separate instrument. Nothing is said in the sale deed as to the cost of the developments. The assessment year with which the present reference is concerned is 1948-49. In the relative accounting year, the company sold a number of plots and entered in its books a sum of Rs. 43,692-11-9 as receipts on account of those sales. The whole of the sum, however, did not represent cash receipts. It was made up of portions of the sale-prices received in cash, the unpaid balances retained by the purchasers as debts and the interest received or receivable in the year of account under the deeds of charge. The statement made by the Tribunal in its appellate order that the interest amounts were brought into the accounts, as and when received, does not appear to be correct. Against the credit entry of Rs. 43,692-11-9 the assessee made a debit entry in its books of a sum of Rs. 24,809 as the estimated expenditure for the developments to be carried out in respect of the plots which had been sold during the year. No part of that amount represented any expenditure actually made. It was only an estimate of the anticipated expenditure which the company thought it would have to make in future years for carrying out the developments for which it had undertaken a liability during the year of account. In the course of its assessment to income-tax for the year 1948- 49 the company claimed a deduction of the aforesaid amount of Rs. 24,809 as expenditure wholly laid out for the purposes of its business. The claim was disallowed by the ITO on the ground that the expenses had not been actually incurred in the year of account and also on the ground that the estimate had not been proved to be based on a consideration of the real expenses which the company would have to incur. On appeal, the AAC upheld the disallowance, but did so on the ground that there was as yet no accrued liability and on the further ground that as the developments would be carried out in the future, the expenditure estimated at current price could not be allowed. On further appeal, the Tribunal held that it was by no means certain what the actual cost would be when the developments were carried out and that although the company had under taken to carry out certain developments, it could bring expenses into account only when the expenses were actually incurred. As regards the receipts, the Tribunal held that the company had received the full value of the plots and the part of the price unpaid, at the time of the sales, had been advanced to each individual buyer on a mortgage of the plot sold to him.
(3.) AFTER having failed even with the Tribunal, the assessee asked for a reference of the matter to this Court and in pursuance of that requisition, the following question has been referred : "Whether on the facts and circumstances stated above, the sum of Rs. 24,809 can legally be allowed as an expense of the year under consideration." Although the question refers to the "facts and circumstances stated above", the statement of the case contains few of the facts I have so far recited. Those had to be collected from other sources, some of them not even contained in the paper book.;