Capital versus revenue expenditure: payment described as interest on acquisition of land was held to form part of the purchase price.

An amount described as interest payable to the Government in connection with a proposed purchase of factory land and building was held to be part of the aggregate acquisition cost rather than a revenue outgoing. Because the property had not yet been transferred and the payment formed part of the consideration for acquiring an immovable capital asset, it retained capital character and was not deductible as revenue expenditure. The concurring view also noted that the record did not establish the payment as true interest, and that the computation appeared only to fix the sale price.

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Issues: Whether the amount described as interest payable to the Government in connection with proposed purchase of factory land and building was deductible as a revenue expense.

Analysis: The amount in question arose out of the computation of the price at which the Government was prepared to transfer the property to the assessee. The property had not yet been transferred, and the payment described as interest was part of the aggregate cost fixed for acquiring the immovable property. A payment forming part of the consideration for acquisition of a capital asset does not take on the character of a revenue outgoing. The claim was therefore not an allowable deduction as revenue expenditure.

Conclusion: The amount was not deductible as revenue expenditure and was properly treated as capital in nature; the answer to the referred question was against the assessee and in favour of the Revenue.

Concurring Opinion: Ranganathan J. agreed with the result on the narrower ground that the material on record did not establish that the payment was truly interest on purchase price, and that the computation appeared to be only a method of fixing the sale price.

Ratio Decidendi: An amount described as interest, when it is ally part of the sale price or consideration for acquiring a capital asset, is capital in character and not deductible as revenue expenditure.

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