Voluntary payment of vendor's tax liability is neither revenue expenditure nor part of actual cost for depreciation.

A voluntary payment of the vendor's capital gains tax after the assessee had already obtained title under a registered sale deed was not deductible as revenue expenditure, because the tax liability arose only in the vendor's hands and the assessee was not the statutory debtor. The same payment also could not form part of the asset's actual cost for depreciation, because it neither acquired nor improved the property nor perfected title under sections 43(1) and 32. The reference questions were answered in favour of the Revenue, and no deduction or depreciation benefit was available.

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Issues: (i) Whether the amount paid by the assessee towards the vendor's capital gains tax was allowable as revenue expenditure. (ii) Whether the same payment could be treated as part of the actual cost of the asset so as to qualify for depreciation.

Issue (i): Whether the amount paid by the assessee towards the vendor's capital gains tax was allowable as revenue expenditure.

Analysis: The property had already been conveyed to the assessee under the registered sale deed, and the liability to pay capital gains tax on the transfer arose only in the hands of the vendor. The acquisition notice under Chapter XX-A of the Income-tax Act, 1961 was directed to the transferor's alleged understatement of consideration, and the assessee was not the statutory debtor for that tax. A voluntary discharge of a third party's tax liability, even if prompted by business convenience or relationship considerations, does not amount to expenditure incurred for the assessee's own business purpose.

Conclusion: The payment was not allowable as revenue expenditure and the finding was against the assessee.

Issue (ii): Whether the same payment could be treated as part of the actual cost of the asset so as to qualify for depreciation.

Analysis: Actual cost under section 43(1) and depreciation under section 32 depend on expenditure incurred by the assessee in acquiring or improving its own asset. The assessee had already obtained complete title on registration and the payment did not perfect any defective title, add any new right, or improve the asset. A gratuitous payment of another person's tax liability cannot be added to the asset's cost merely because the assessee chose to bear it after the sale.

Conclusion: The amount did not enhance the actual cost of the asset and depreciation was not allowable on it, against the assessee.

Final Conclusion: Both reference questions were answered in favour of the Revenue and the assessee obtained no deduction or depreciation benefit on the sum paid.

Ratio Decidendi: A voluntary payment of a third party's tax liability, made after the assessee has acquired complete title to the property, is neither revenue expenditure of the assessee nor part of the asset's actual cost for depreciation purposes.

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