COMMISSIONER OF INCOME TAX Vs. HYDERABAD RACE CLUB

JUDGEMENT

(1.) AT the instance of the Revenue, the Income-tax Appellate Tribunal referred the following question, said to arise out of its order in I. T. A. No. 234 of 1979, dated June 26, 1990, for the opinion of this court :

(2.) THE brief facts of the case are that the assessee-company succeeded to the business of an association of persons, viz., Hyderabad Race Club, Hyderabad, which was conducting the races. In the process of taking over the business, it took over all the assets and liabilities of its predecessor. At the time when the assets and liabilities were taken over by the assessee-company, there was no demand of income-tax. However, subsequently there was a demand for a sum of Rs. 28,413 which was due by the asses-see's predecessor and the said amount was paid by the assessee-company. In the assessment proceedings, the assessee-company claimed deduction.

(3.) LEARNED counsel for the Department contended that the Tribunal was not justified in allowing a sum of Rs. 28,413 as a revenue deduction. Admittedly, the said amount represents the income-tax liability of the predecessor of the assessee. It is also a fact that the assessee-company took over ail the assets and liabilities of its predecessor. The memorandum of understanding or agreement was not filed to show whether the assessee was liable or not in so far as the subsequent liabilities of its predecessor are concerned. In any case, without any coercive steps being taken by the Department, the assessee has come forward and discharged the liabilities of its predecessor. Now the dispute is whether it should be allowed as a revenue deduction. The contention of the Revenue is that it could not be allowed as a revenue deduction. Even assuming that the same would be treated as the assessee's liability, as it is an income-tax liability, it would be treated as a personal liability and, therefore, it is not allowable as deduction. Even otherwise also, if it is a liability of its predecessor, it should go into the cost of acquisition of the assets and in that case it would be a capital expenditure and, therefore, it could not be allowed as a revenue deduction. LEARNED counsel also relied upon the following decisions in support of his contention :