LexCOMMISSIONER OF INCOME-TAX CENTRAL, CALCUTTA & ANR. versus AMALGAMATED DEVELOPMENT, LTD.
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A
COMl\llSSIONER OF INCOME-TAX CENTRAL, CALCUTTA
&ANR.
B
c
0
E
F
G
H
v.
AMALGAMATED DEVELOPMENT, LTD.
March 23, 1967
[J. C. SHAH, S. M. SIKRI AND V. RAMASWAMI, JJ.]
Income-tax Act,. 1922-s.
10(2)(xv)-company
purchasing
assets
and liabilities of firm-liabilities including obligation to complete deve·
lopment work 011 plots sold by firm-Whether expenditure on such deve-
lopmem deductible expenditure.
Jnco1n~ssessee conzpany selling
plots for part cash and balance
secured by mortgage-whether balance tantamount to loan to purcliaser-
therefore whether liable to be regarded as constructive receipt of income.
Under a sale deed executed on July 7, 1948, the respondent company
purchased the assets and liabilities of a firm,. M & Co. At the time the
firm had sold a number of plots
for which part of the consideration
money had been realized and for the balance mortgage bonds had been
executed by the purchasers. Thereafter, the respondent company itself
sold some plots on similar terms. In respect of these plots, there was
an undertaking to lay out roads, etc., and to complete certain develop-
ment work and as the respondent company had taken over the debts as
well as the liabilities of the firm, it was required to complete 'Such work
also in respect of the plots previously sold by the firm.
For its assess-
ment to Income-tax for the years 1950-'51 and 1951-'52 alth"Ough the
respondent company claimed to be treated on the basis that it maintain-
ed its accounts on the cash system, the Income-tax Officer computed the
income on the mercantile basis.
Furthermore, he allowed only the
expenses incurred in· respect of the lands sold by the company itself but
disallowed the expenditure in connection with the land previously sold by
the firm.
He also held that although only a part of the sale price of
the plots sol~ was realised in cash by the company and the balance was
left outstandmg and secured
by a mortgage on the plots the entire
amount of the sale i;>rice was to. b~ c·redited as income.
I~ the appeal
to the Appellate Asststant CommtsSIOner
and
the Tribunal,
the view
taken by the Income-tax Officer on both the points was substantially ·ipheld
However, upon a reference, the High Court held in favour of tl1e res:
pondent company.
1
I~ the appeal to this Court it was contended on ·behalf of the Income
ax
epartment that (i) the expenditure incur d ·
·
·
-
development of plots previously sold b th fi re
m connectio". with the
s. J0(2)(xv) as the lands
already s~d b [h' w~s not deductible under
trade of the respondent com an .
d ·
Y
e
rm w.ere not. stock-1n-
thc price paid by the
rcsp~nd~· tan that furthermore, It was hkely that
dated July 7 1948 to the fi
n company under the contract of sale
of the firm had been fixed ~e{
0;a~akm~ over the assets and liabilities
the
development of such
lots· th mg mto ac~ount the obligation for
these obligation must therefore •be e tt ~~pt"'des incurred . in discharge of
the
respondent
company's b .
a n ~ e to the capital structure of
o~ligation incurred in connecti~~n~lth a~h could . not be
considered an
(n) part of the consideration
e car'l'.mg ?n of its business;
who had bought the plots
money not received m cash from those
was treated as a loan
to the purchase·r for
264
SUPREME COURT REPORTS
(1967] 3 S.C.RI
which the plot sold was mortgaged in favour of the respondent company
and as such should be treated as a constructive receipt liable to be in·
cluded in the profits of the respondent
company derived during the
respective accounting years.
HELD: Dismissing the appeal,
(i) It is not a right approach to examine the question as if all reve·
nue expenditure must be equated with expenditure in connection with
B
stock-in-trade.
In the present case, the sale deed dated July 7, 1948
showed that the respondent company purchased from the firm a whole
running business with all its goodwill and stock-in-trade and including
its liabilities. It could not be said that the respondent company had
nothing to do with the lands already sold which did not form part of
its stock-in-trade. The development of the entire land sold in plots was
an integrated process and could not be sub-divided into water-tight com·
partment or related to any !?articular piece of land. Furthermore, the
C ·
entire
expenditure was required to be
incurred as a matter of com-
mercial expediency.. [269A-EJ
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