Revenue expenditure on temporary use of unpaid purchase money was deductible, not capital cost of acquisition.

A contractual payment made after possession of the cinema property had passed in part performance of the sale agreements was held to be revenue expenditure, not capital cost. The payment compensated the vendors for the temporary use or retention of unpaid purchase money until the sale deed was registered, and was incurred in the course of trading operations. Because it did not perfect title, create a new asset, or enhance the value of the property, no enduring advantage arose. The amount was therefore allowable as a deduction in computing business income and was not part of the purchase price.

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Issues: Whether the sum of Rs. 35,000 paid by the assessee to the vendors under the sale agreements was capital expenditure forming part of the purchase price or a revenue disbursement allowable in computing business income.

Analysis: The payment was made after possession of the cinema property had been handed over in part performance of the agreement and the assessee had become entitled to run and enjoy the business. The balance of the sale price remained unpaid, and the contractual payment was expressly to compensate the vendors during the intervening period until registration of the sale deed. On the true construction of the agreements, the amount represented compensation for the use of the unpaid balance of the purchase money and not an amount paid to perfect title or acquire a new asset. No enduring advantage was created, no enhancement of the value of the asset resulted, and the expenditure was incurred in the course of trading operations.

Conclusion: The payment of Rs. 35,000 was revenue in nature and was allowable as a deduction. The question was answered in favour of the assessee and against the Department.

Final Conclusion: The reference was disposed of by holding that the impugned payment was an allowable business outlay and not part of the capital cost of acquisition.

Ratio Decidendi: Where a contractual payment is made for the temporary use or retention of unpaid purchase money after possession has been given in part performance, and the payment does not bring into existence or improve a capital asset, the expenditure is revenue rather than capital.

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