LexMADNANI DEVELOPMENT CORPN. (P) LTD. versus COMMISSIONER OF INCOME-TAX, ORISSA
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
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MADNANI DEVELOPMENT CORPN. (P) LTD.
v.
COMMISSIONER OF INCOME-TAX, ORISSA
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JULY 16, 1986
[R.S. PATHAK AND SABYASACHI MUKHARJI,JJ.]
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Income Tax Act, 1961-s. 70--Assessee-A Contractor-Fur·
chased two plots of lands for excavation of land to fu.lfil railway
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contract-After work completed lands sold-Loss incurred-Whether
capital or revenue loss.
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The assessee-company while carrying on business as a Contractor
entered into a contract with the Railway Administration, inter alia, for
the execution of earth work required for the construction of a new rail-
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way yard. For this purpose, the assessee purchased two pieces of land at
a total cost ofRs.68,241. Soon after the work was over, the assessee sold
both lands for a sum of Rs.23,000, thereby sustaining a loss of
Rs.45,241. The assessee treated this as the value of the excavated earth,
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and apportioned the amount in its accounts in assessment years 1965-
66, 1966-67 and 1967-68. The claim of the assessee to a deduction of
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Rs.30,045 for the assessment year 1966-67 was disallowed by the
Income-tax Officer on the ground that it represented a capital loss. The
Appellate Assistant Commissioner dismissed the first appeal of the as-
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sessee. The Income Tax Appellate Tribunal allowed the second appeal
of the assessee on the ground that the land formed a wasting asset and
by constant digging of the earth the land had become unserviceable.
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In the Reference, on the question whether the loss of Rs.30,045
claimed by the assessee is a capital loss or a revenue loss, the High
Court held that the loss of the said amount claimed by the assessee was a
capital loss and, therefore, the assessee was not entitled to a deduction.
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Dismissing the appeal of the assessee-company to this Court,
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HELD: The assessee was full proprietor of the two pieces of land
and for an indefinite period. The reason for acquiring the land was no
doubt to provide a ready supply of earth to the work site nearby, hut·
there was nothing to prevent the assessee from continuing as owner of
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220
SUPREME COURT REPORTS
[1986) 3 S.C.R.
·the land even after the railway contract had been executed and putting
it to any other use. The land was treated by the assessee as its fixed
asset. In all the circumstances of the case, the two pieces of land must be
regarded as capital assets, and the loss claimed by the assessee must be
regarded as a capital loss. [222B-DJ
M.A. Jabbar v. Commissioner of Income-tax, Andhra Pradesh,
[ 1968) 68 ITR 493, 497-8 distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1649
(NT) of 1974
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From the Judgment and Order dated 25.1.1974 of the Orissa
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HighCourtinS.J.C.No. lllof1972.
Govind Das and J .R. Das for the Appellant.
S.C. Manchanda, Miss A. Subhashini and K.C. Dua for the
Respondent.
The Judgment of the Court was delivered by
PATHAK J. This appeal by special leave is directed against the
judgment of the High Court of Orissa disposing of an Income-tax
Reference and answering the following question in favour of the re-
venue and against the assessee:
"Whether in the facts and circumstances of the case, the
loss of Rs.30,045 claimed by the assessee is a capital loss or
a revenue loss?"
The assessee is a private limited company carrying on business as
a contractor. In April 1964 it entered into a contract with the South-
Eastern Railway Administration for the execution of earth work,
bridge work and other miscellaneous works required for the construc-
tion of a new railway yard. As it was required to supply earth outside
the railway land the assessee found it expedient to buy two pieces of
1 and from which earth could be excavated and conveniently taken to
the work site. One piece of land was acquired at a cost of Rs.53, 196
during the calendar year 1964 corresponding to the assessment year
1965-66, and the other piece of land was acquired for Rs.15 ,045 during
the calendar year pertaining to the assessment year 1966-67, bringing
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MADNAN! DEVELOPMENT CORP. v. C.l.T. [PATHAK,J.J
221
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the total cost to Rs.68,241. Soon after the work was over, the assessee
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sold both lands for a sum of Rs.23,000, thereby sustaining a loss of
Rs.45,241. The assessee treated this as the value of the excavated
earth, and apportioned the amount in its accounts in the following
manner, Rs.8, 196 as the cost of the earth for the assessment year
1965-66, Rs.30,045 towards the eartExcerpt shown. Read the full judgment & AI analysis in Lexace.