TaxTMI 
TaxTMI 
1998 (12) TMI 121
X X X X Extracts X X X X
X X X X Extracts X X X X
..... As soon as they came to know that lands purchased by them were encroached by the assessee, they filed a suit in Civil Court at Pune. The Civil Court vide its order dated 11-2-1985 held that assessee had encroached upon the land of the Plaintiff's and consequently passed the decree in favour of plaintiffs. This was further confirmed by the court of Additional District Judge, Pune, vide his order dated 24th June, 1986. The assessee filed further appeal before Hon'ble Bombay High Court. During the pendency of the appeal before the High Court, the assessee entered into compromise with the plaintiffs as a result of which, a compromise decree was passed by the Hon'ble High Court on 14th January 1988 under which the plaintiffs gave up their claims, right, title and interest in the suit lands against the consideration of Rs. 15,23,266. 3. The aforesaid amount was claimed by the assessee as revenue expenditure in A.Y. 1989-90. However, such claim was rejected by the Assessing Officer on the ground that it was a capital expenditure since the amount was paid for protection of its right for the lands which is a capital asset. The appeal before the CIT(A) remained unsuccessful. The CIT(A) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....clear findings given by the civil court and the appellate court. So what he obtained under the compromise decree was the perfect title in such lands which amounts to acquisition of asset. Alternatively, it was pleaded by him that assessee got rid of the defective title in such lands. In either case, it was a capital expenditure in view of the Supreme Court decisions in the case of K Jaganmohan Rao (supra) as well as in the case of Dalmia Jain & Co. Ltd. (supra). It was further submitted by him that other decisions relied upon by the assessee's counsel were distinguishable on facts. 6. Rival submissions of the parties, material placed before us as well as case law referred to before us have been considered carefully. The perusal of the orders passed by the civil court and appellate court reveals that assessee had encroached upon the lands owned by Shri Chhaburao Pradhan. It is only during the pendency of the appeal proceedings before the Hon'ble High Court that assessee entered into a compromise with the plaintiffs. At this stage, it would be useful to refer clauses 2, 3 and 5 of the said compromise decree which are set out as under :- "(2). The Respondent No. 1 Chhaburao Nilk....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that expenditure incurred in protecting the business assets would be revenue expenditure. To strengthen his contention, he relied on the decision of Madras High Court in the case of Ghansham Singh (supra). After giving our deep thoughts to the contention of the assessee, we are of the view that there is no conflict between the decisions of the Supreme Court. It would be useful to refer the legal principle laid down by the Supreme Court in the decision of Dalmia Jain & Co. Ltd. (supra) : - "Where litigation expenses are incurred by the assessee for the purpose of creating, curing or completing the assessee's title to the capital, then the expenses incurred must be considered as capital expenditure. But if the litigation expenses are incurred to protect the business of the assessee, they must be considered as a revenue expenditure." 9. The study of the test laid down in the aforesaid two decisions of the Hon'ble Supreme Court shows that there is a uniformity in both the decisions in the sense that expenditure incurred in curing, completing, perfecting or on getting rid of defect in the title of the capital would be capital in nature. In the case of V. Jaganmohan Rao (supra) the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he title of the assessee in the spinning mill became defective and therefore, in order to get rid of such defect in the title, the assessee had paid Rs. 1,15,000 to the sons of the vendors. The judgment of the Supreme Court in the case of V. Jaganmohan Rao (supra) was delivered on the basis of these facts. Therefore, the test laid down by the Supreme Court has to be applied where there is a defect in the title of the assets only and it cannot be extended further to other situations. 12. In the later decision in the case of Dalmia Jain & Co. Ltd. (supra) the Supreme Court was concerned with a case where assessee has not acquired any asset. It was carrying on the business of working the quary as an agent of the Government. Third party had filed a suit against the Government for specific performance and in the alternative damages against the Government impleading the assessee as defendant. Since the assessee was dragged in the litigation, it had to defend itself against damages. In view of these facts, it was held by the Supreme Court that expenses were incurred to protect the business and were allowable as revenue expenditure. Therefore, this decision would be applicable only wher....