Part-performance transfer and limited corporate expense deduction determined partial relief in property and business expense tax treatment.

ITAT Kolkata held that a company with no active operations may still incur limited administrative to preserve corporate existence and meet statutory needs, but expenses already attributable to house property income cannot be duplicated as business deductions. In the absence of complete evidence that all claimed outgoings were exclusively for business, full allowance was rejected and the disallowance was restricted to a reasonable percentage, giving the assessee partial relief. On capital gains, the transfer of immovable property was treated as having occurred when a written sale agreement, part consideration, and delivery of possession satisfied part performance; the later registered deed did not defer taxability. Capital gains were therefore not taxable in the registration year, and the addition was deleted.

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Issues: (i) Whether the disallowance of administrative and other company expenses should be restricted where the assessee-company had no active business operations but claimed such expenditure to maintain its corporate existence; (ii) Whether capital gains on transfer of immovable property arose in the year of the later registered sale deed or in the earlier year when the agreement for sale and possession placed the transaction within the ambit of part performance.

Issue (i): Whether the disallowance of administrative and other company expenses should be restricted where the assessee-company had no active business operations but claimed such expenditure to maintain its corporate existence.

Analysis: A company may incur expenses to preserve its corporate status and meet statutory obligations even when it has no active business. At the same time, expenditure relatable to rental income cannot be claimed again as business expenditure where deduction has already been allowed under the house property provisions. In the absence of complete material showing that all claimed expenses were exclusively for business, a full allowance was not justified, but an outright disallowance was also unwarranted.

Conclusion: The disallowance was limited to a reasonable percentage, and the assessee succeeded partly on this issue.

Issue (ii): Whether capital gains on transfer of immovable property arose in the year of the later registered sale deed or in the earlier year when the agreement for sale and possession placed the transaction within the ambit of part performance.

Analysis: Where the agreement for sale was written, consideration had partly passed, possession had been handed over, and the transferee was in possession in part performance of the contract, the transaction answered the description of transfer under the capital gains provisions. In such a case, the later registration deed did not postpone taxability. The later invocation of the deeming rule for stamp valuation did not alter the year in which the transfer had already occurred under the earlier agreement and possession arrangement.

Conclusion: Capital gains were held not taxable in the year of registration, and the assessee succeeded on this issue.

Final Conclusion: The appeal resulted in partial relief to the assessee, with the expenditure disallowance reduced and the capital gains addition deleted for the year under consideration.

Ratio Decidendi: For capital gains purposes, a transfer occurs when the conditions of part performance are satisfied and possession is allowed in furtherance of a written contract, even if the conveyance is registered later; expenditure relating to house property income cannot be claimed again as business expenditure, and only such company expenses as are genuinely necessary for sustaining the corporate existence may be allowed.

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