Interest on deferred purchase consideration is capital cost, not deductible as a revenue expense under Section 10(2).

The note addresses whether interest paid pursuant to deferred purchase instalments qualifies as a revenue deduction under clauses (iii) or (xv) of Section 10(2) of the Income-tax Act. It explains that where a consent decree or conveyance conditions make title contingent on full payment and interest is expressly added to the purchase price, such interest constitutes part of the capital consideration for acquiring the asset rather than an expenditure wholly and exclusively for carrying on the business. The operative effect is that interest on deferred instalments payable as part of the purchase consideration is treated as capital cost and is not deductible under those clauses.

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Issues: (i) Whether the amount of Rs. 17,281/- paid by the assessee is allowable as a deduction under clause (iii) or clause (xv) of Section 10(2) of the Income-tax Act, 1961; (ii) Whether the amount of Rs. 12,486/- (interest for the period May 6, 1954 to March 31, 1955) is allowable as a deduction under clause (iii) or clause (xv) of Section 10(2) of the Income-tax Act, 1961.

Issue (i): Whether Rs. 17,281/- is deductible under clause (iii) or clause (xv) of Section 10(2) of the Income-tax Act, 1961.

Analysis: The court examined the nature of the Rs. 17,281/-, finding it derived from interest added to the purchase price because of the assessee's default in performing the option to purchase and the subsequent consent decree which made the purchase price (including interest on deferred instalments) payable before transfer of title. The court compared relevant precedents, distinguishing Coelho (where borrowing, purchase and business formed an integrated transaction) and applying Metro Theatre (where interest on deferred purchase of leasehold land was held to be part of the purchase price and capital in nature). The decree's terms (conveyance only after full payment, charge until full payment) demonstrate that the interest formed part of the capital consideration rather than being an expenditure wholly and exclusively for carrying on the printing/publishing business.

Conclusion: Rs. 17,281/- is not allowable as a deduction under clause (iii) or clause (xv) of Section 10(2) of the Income-tax Act, 1961; decision against the assessee.

Issue (ii): Whether Rs. 12,486/- (interest from May 6, 1954 to March 31, 1955) is deductible under clause (iii) or clause (xv) of Section 10(2) of the Income-tax Act, 1961.

Analysis: The court held that this interest likewise resulted from deferred payment of the purchase price under the consent decree and did not create any enduring business benefit separate from the acquisition of the land. The payment was attributable to the consideration for acquiring the capital asset (land/leasehold) and not to moneys borrowed for business operations; the decree did not effect a borrowing transaction but enforced specific performance of the purchase obligation. Precedents treating interest on deferred purchase instalments as capital in nature were applied.

Conclusion: Rs. 12,486/- is not allowable as a deduction under clause (iii) or clause (xv) of Section 10(2) of the Income-tax Act, 1961; decision against the assessee.

Final Conclusion: Both questions referred are answered in the negative; the payments in dispute form part of the capital consideration for acquisition of the property and are not deductible as revenue expenditures under clause (iii) or clause (xv) of Section 10(2) of the Income-tax Act, 1961.

Ratio Decidendi: Interest payable on deferred instalments that is stipulated as part of the purchase consideration and where title passes only upon full payment forms part of the capital cost of the asset and is not an expenditure laid out wholly and exclusively for the purpose of carrying on the business.

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