2003 (1) TMI 230 - AT - Income Tax

Tribunal ruling: Assessee's appeal partly allowed, disputes over property value & deductions resolved. Legal expenses fully deductible.

PRINCE RUBBER & PLASTICS. Versus DEPUTY COMMISSIONER OF INCOME TAX.

The Tribunal partly allowed the assessee's appeal while dismissing the Departmental appeal. The disputes over annual property value, deduction under the ... Business expenditure Issues:- Dispute over annual property value and deduction under IT Act- Addition of enhanced rent from State Bank of India- Deduction of legal/litigation expensesDispute over annual property value and deduction under IT Act:The appeal involved cross-appeals by the Department and the assessee against the CIT(A) order for the assessment year 1985-86. The assessee contested the annual property value determined by the IAC(Asst.) and the denial of deduction under section 24(1)(x) of the IT Act, 1961. The CIT(A) concurred with the IAC(Asst.) on these matters. The assessee argued that the property's annual value under trespassers' possession should be nil and claimed entitlement to deduction under the IT Act. Additionally, the dispute included the CIT(A) allowing an addition of enhanced rent from the State Bank of India for the same assessment year.Addition of enhanced rent from State Bank of India:The CIT(A) concurred with the IAC(Asst.) in making an addition of Rs. 1,57,352 as enhanced rent from the State Bank of India for the assessment year 1985-86. The assessee contended that this enhancement was settled in consequence of a compromise on 3rd Aug., 1984, falling within the next assessment year 1986-87. The dispute centered on the timing and allocation of this enhanced rent amount between the relevant assessment years.Deduction of legal/litigation expenses:The primary issue revolved around the deduction of legal expenses claimed by the assessee. The AO rejected the claim, stating that such expenses cannot be claimed under the head 'income from house property.' However, the CIT(A) allowed a deduction of Rs. 21,621, considering it as part of the collection charges. The assessee argued that the expenses were incurred to protect its business interest and should be considered revenue expenditure. The Tribunal agreed with the assessee, emphasizing that the legal expenses were incurred to protect the business interest and, therefore, were of revenue nature. The Tribunal set aside the orders of the lower authorities and allowed the claim of the assessee in full, disagreeing with the CIT(A)'s limitation of the deduction based on collection charges.In conclusion, the Tribunal partly allowed the assessee's appeal while dismissing the Departmental appeal, resolving the disputes over annual property value, deduction under the IT Act, addition of enhanced rent, and the deduction of legal/litigation expenses in a comprehensive and detailed manner.