COMMISSIONER OF INCOME TAX CENTRAL CALCUTTA IN BOTH THE APPEALS Vs. AMALGAMATED DEVELOPMENT LTA IN BOTH THE APPEALS

JUDGEMENT

(1.) THE following Judgment of the court was delivered by:

(2.) THESE appeals are brought, by certificate, from the judgment of the Calcutta High court dated 4/12/1962 in Income-Tax Reference No. 57 of 1958.

(3.) WITH respect to the first question it was submitted by Mr. Mitra that only the expenditure incurred in the relevant accounting year in connection with the lands sold by the respondent company should have been allowed and not the expenditure incurred in connection with the lands sold by the vendor-firm previously. It was not disputed by Mr. Mitra that under the terms of the contract between the vendor-firm and the respondent company the latter was bound to meet the obligations of the development of land previously sold by the firm, but the contention was that the lands already sold by the firm were not stock-in-trade of the respondent company. I was said that expenditure not incurred in connection with stock-in-trade of the business of the respondent-company is not deductible under s. 10(2)(xv) of the Income-tax Act. We are unable to accept this argument as correct. It is not, in our opinion, a right approach to examine the question as if all revenue expenditure must be equated with expenditure in connection with the stockin-trade. In the present case, the sale deed dated 7/07/1948 shows that the respondent company purchased from the firm a whole running business with all its goodwill and stock-in-trade and including its liabilities. The respondent-company had taken over undeveloped land and the idea was to develop the same by making roads, installing a drainage system, street lighting, etc., and then selling the same in small plots at a profit. The principal inducement therefore for the purchasers was that the respondent-company would develop the land and the purchasers would be able to pay by instalments spread over a number of years. At the time the respondent-company took over the lands a portion thereof had already been sold by the firm but the development had not been completed and in the sale deeds entered into by the respondentcompany with the subsequent purchasers the respondent-company expressly undertook the liability to complete the development within a reasonable time. The argument that the respondent-company had nothing to do with the lands already sold which did not form part of its stock-in-trade is not correct. In the present case, the development of the entire land is an integrated process and cannot be sub-divided into water tight compartments as the making of the roads and the provisions for drainage and street lighting, etc., cannot be related to any particular piece of land but the development has to be made as a whole as a complete and unified scheme. It is a case of commercial expediency and, as pointed out by this court in Eastern Investments Ltd. v. Commissioner of Income Tax(1) : 'A sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade.' (approving the dictum of Viscount Cave, L.C. in Atherton v. British Insulated and Helsby Cables Ltd. (10 T.C. 155, 191). The same test has been applied in Cooke (H.M. Inspector of Taxes v. Quick Shoe Repair Service(2), in which the agreement by which the respondent firm purchased a shoe, repair business provided that the vendor should discharge all liabilities of the business outstanding at the date of sale. The vendor failed to do so, and the respondents, in order to preserve the goodwill and to in discharge of the vendor's liabilities. It was held by Croom Johnson, J. that the sums so paid by the respondent firm were wholly and exclusively laid out for the purposes of its business and were not capital expenditure and were, therefore, allowable deductions for income-tax purposes.