Law: Income Tax Act, 1922

Section: 10(2)(xv)

Section 37(1) , read with section 36(1)(iii) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv), read with section 10(2)(iii) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment year 1955-56 - By deed of lease, assessee-company took over a plot of land on lease for a period of ninety-nine years - Deed of lease gave option to both parties i.e., lessor to sell said land and lessee to purchase it at agreed price - Subsequently lessor exercised his option and thereupon assessee-company became liable to purchase leased land at certain price - Assessee company however, made default in consequence of which lessor filed a suit against it - later on, parties took a consent decree as per terms of which assessee-company had to pay certain amount in installments along with interest to purchase leased land in question - In respect of amount of interest, assessee-company claimed deduction under section 10(2)(xv) or in alternative under section 10(2)(iii)of 1922 Act - Whether in view of fact that interest payable by assessee-company on reducing balances was to from part of purchase price, clause (xv) of section 10(2) would not apply - Held, yes - Whether, further, having regard to fact that obligation to pay purchase price was founded upon assessee's liability arising from decree and not on basis of any borrowings or loan, transaction in question could not amount to borrowing within meaning of clause (iii) of section 10(2) of 1922 Act - Held, yes - Whether, in view of aforesaid, amount of interest paid on installments could not be claimed as deduction either under clause (iii) or clause (xv) of section 10(2) of 1922 Act - Held, yes. FACTS By a deed of lease dated March 10, 1945, the assessee-company took over a plot of land admeasuring 4,059 square yards on lease for a period of ninety-nine years. The deed of lease gave option to both the parties, the lessor to sell the said land at a price of Rs. 4,09,959 at the rate of Rs. 101 per square yard, and the lessee to purchase it at the said price, both parties agreeing to exercise their respective option during a period of five years commencing from January 1, 1948, and ending on…

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