Commissioner of Income Tax vs Malayalam Plantations (India) Ltd.

T. Kochu Thommen, J.—The following two questions have been, at the instance of the Revenue, referred to us by the Income Tax Appellate Tribunal, Cochin Bench ;

" 1. Whether the payment of Rs. 75,000 to one Mr. Nair is revenue expenditure deductible in the computation of the business income of the assessee ?

Whether, on the facts and in the circumstances of the case, the rubber replantation subsidy is income assessable to Income Tax ? "

Question No. 2 has to be, in the light of our decision in Commissioner of Income Tax Vs. Malayalam Plantations Ltd., (ITR Nos. 352 and 353 of 1982), answered in the affirmative, that is, in favour of the Revenue and against the assessee. We do so.

Question No. 1 relates to the payment of Rs. 75,000 paid by the assessee to one Mr. Nair during the accounting year relevant to the assessment year 1977-78 in full and final settlement of Mr. Nair''s suit against the assessee for recovery of possession of property. The Income Tax Officer considered this claim to be in the nature of a capital expenditure and, therefore, not allowable u/s 37 of the Income Tax Act, 1961. This finding was confirmed by the Commissioner (Appeals). However, on appeal by the assessee, the Tribunal found that the expenditure was in the nature of an ex gratia payment and was allowable u/s 37. The specific finding of the Tribunal nevertheless is :

" ...This expenditure is to be considered as only incurred for protect-ing the property of the assessee. It would, therefore, be revenue expenditure.... "

The conclusion is, in our view, not warranted by the finding that the expenditure was incurred for the protection of the property. The suit instituted against the assessee by Mr. Nair was for recovery of possession of land. It was for preserving the assessee''s right in or over the land that the payment was made. That being the fact found, the Tribunal went wrong in concluding that such expenditure was allowable u/s 37. Accordingly, we answer question No. 1 in the negative, that is, in favour of the Revenue and against the assessee.

We direct the parties to bear their respective costs in these tax referred cases.

A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.