Interest on land acquisition compensation treated as revenue expenditure and allowed as a business deduction.

Interest paid under section 34 of the Land Acquisition Act on compensation for land acquired for a company was treated as revenue expenditure, not part of the purchase price or compensation and therefore not capital expenditure. Because the acquisition was connected with the assessee's business and the payment was incurred wholly and exclusively for business purposes, it satisfied the allowance provision for business expenditure under section 10(2)(xv) of the Income-tax Act, 1922. The deduction was accordingly allowable as an outgoing related to business necessity rather than acquisition of a capital asset of permanent character.

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Issues: Whether interest paid under section 34 of the Land Acquisition Act on compensation for land acquired for the assessee-company was deductible as business expenditure under section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: The interest paid under section 34 was not part of the compensation or purchase price of the land and was, therefore, not capital expenditure. The land was acquired for the company under the Land Acquisition Act and the acquisition was connected with the business of the assessee. On those facts, the payment was an outgoing incurred wholly and exclusively for the purposes of the business and fell within the allowance provision for business expenditure. The expenditure satisfied the test of revenue expenditure, being related to business necessity and not to acquisition of a capital asset of a permanent character.

Conclusion: The deduction was allowable under section 10(2)(xv) of the Income-tax Act, 1922 and the question was answered in the affirmative, in favour of the assessee.

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