High Court Of Delhi
CIT vs. Pragati Construction Company
Section 37(1)
S.B. Sinha, C.J. & A.K. Sikri, J.
IT Ref. No. 250 of 1983
23rd April, 2002
Counsel Appeared
R.D. Jolly & Ajay Jha, for the Petitioner : Anoop Sharma, for the Respondent
JUDGMENT
S.B. SINHA, C.J. :
The question referred to for opinion of this Court by the Tribunal in terms of s. 256(1) of the IT Act is as under : “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the order of the CIT(A) and upholding that the provisions of Rs. 97,040 for registration charges of plots by the assessee in its accounts were chargeable as accrued liability against the profit of the year under consideration ?”
2. The fact of the matter is as follows : The assessee is a registered firm. It carries on business of construction and sale of plots in multi-storeyed commercial buildings. Allegedly, during the accounting period or relevant assessment year, it had completed certain works. In its return, it claimed a deduction of Rs. 97,040 on account of provision of registration fee. The said scheme was disallowed by the AO stating : “No registration has yet been done and only provision of Rs. 97,040 is made. These cannot be allowed now as there is no such ascertained liability. Even in terms of agreement these expenses appeared to be borne by the flat/shop owners in terms of cl. 33(a) of the agreement. The question of allowance, if at all, these are admissible can be considered at the time of its payment.”
3. The assessee preferred an appeal thereagainst which was allowed by the CIT(A) stating : “No registration has yet been done and only provision of Rs. 97,049 is made. This cannot be allowed now as there is no such ascertained liability. Even in terms of agreement these expenses appear to be borne by the flat/shop owners in terms of cl. 33(a) of the agreement. The question of allowance, if at all these are admissible, can be considered at the time of its payment.”
4. An appeal was made by the Revenue to the Tribunal on the following grounds : (a) the assessee in this case is not expected to be liable for this expense; and (b) any further liability can be claimed only if it has been ascertained. Mr. Jolly, the learned counsel appearing on behalf of the Revenue, would submit that the question is covered by a Division Bench decision of this Court in IT Ref. 147/81.—CIT vs. Vishal Builders (P) Ltd.dismissed on 19th Dec., 2001 [reported at (2002) 173 CTR (Del) 112—Ed.] The learned counsel would contend that from the order of the Tribunal dt. 21st Jan., 1982, it would appear that the Tribunal, inter alia, relied upon the case of Vishal Builders (P) Ltd. in IT Ref. No. 1546 and CO 154/1977 which was the subject-matter of theaforementioned IT Ref. 147/81. Mr. Sharma, the learned counsel appearing on behalf of the assessee, on the other hand, would submit that the registration fee was claimed as ‘expenses’ although the same was not incurred during the period in question having regard to the fact that the assessee was maintaining his books of account on mercantile basis. The learned counsel would contend that having regard to the fact that the sale price of the land has been taken on receivable basis, there is absolutely no reason as to why the registration charges would not be computed on payable basis for the purpose of determining the profit and loss during the relevant assessment year. In support of the said contention, reliance has been placed on CIT vs. Lever Brothers (India) Ltd. (1959) 37 ITR 140 (Bom) : TC 28R.367, Metal Box Company of India Ltd. vs. Their Workmen (1969) 73 ITR 53 (SC) : TC 68R.280 and CIT vs. Nav Bharat Nirman (P) Ltd. (1983) 141 ITR 723 (Del) : TC 17R.1273. The learned counsel further submitted that the CIT himself wrote a letter to the Delhi Development Authority who, in response, categorically stated that the liability to pay the registration charges is on assessee. It was, therefore, submitted that the liability being an admitted one, the same would come within the purview of ‘expenditure’ which could be taken into consideration for the purpose of determination of the profit and loss. It was contended that Delhi Development Authority being a statutory authority, it could fix the liability.
Although prima facie, the submission of Mr. Sharma appears to be attractive, it is not in dispute that in the agreement entered into by and between the assessee who is the promoter and the buyer is contained in Annexure E. Clause 33 of the said agreement is as follows : “33. (a) All costs, charges and expenses in connection with the formation of the co-operative society, limited company or any other corporate body of buyers as well as the cost of the preparing, engrossing, stamping and registering all the agreements, deeds of assignment, sale deeds, conveyance or any other documents to be executed under these presents by the promoter or the buyer as well as the entire professional costs of the Attorneys of the Promoter in preparing and approving all such documents shall be borne by the society or limited company if formed and otherwise proportionated by all the holders of flats/shops/godowns in the said building. The promoter shall not be liable to contribute any amount towards such expenses. The same will be the position regarding the lease to be executed by D.D.A., if it is executed directly in favour of the company/society or incorporated body of buyers. The proportionate share of such expenses without loss of time the buyer shall along with the last instalment thereof deposit with the promoter a sum of Rs. 1,000 for each flat/shop/godown of area less than 500 sq. ft., Rs. 2,000 for area more than 500 sq. ft. but less than 1,000 sq. ft. and Rs. 3,000 for area more than 1,000 sq. ft. but less than 2000 sq. ft. or more. After meeting the cost on actual basis, the balance, if any, will be transferred to the co-operative society, limited company or corporate body of buyers when formed and will be used for further share of his expenses and outgoings. (b) If the co-operative society or limited company or the incorporated body above mentioned is not formed for any reason whatsoever then the promoter may transfer and assign the said building to the person who have purchased all the flats/shops/godowns in the said building each of such purchaser having a share in said property in such proportion as the price paid by him to the total price of all the flats/shops/godowns aggregated together. All costs of such transfer shall be borne by all the purchasers and the share money and deposit mentioned in para 33(a) above shall be appropriated towards the said expenses.”
There may not be any dispute that a liability which is admitted and which is to be incurred at the time of sale of the flat/land for the accounting period, the same may be taken into consideration. But in the instant case, having regard to the proforma of the agreement, there cannot be any doubt whatsoever that the registration charges are to be borne by the allottees and not by the assessee. Once such a fact is brought on record, it is futile to urge that the expenditure would be an admitted liability. At all material times, the assessee knew that it would not have to incur the expenditure towards the registration charges and, thus, could not claim the same. In this view of the matter, we are of the opinion that the decisions which have been referred by Mr. Anup Sharma, cannot be said to have any application in the facts and circumstances of the case. For the reasons aforementioned, the question referred to for the opinion of this Court is answered in negative i.e., in favour of the Revenue and against the assessee.
[Citation : 256 ITR 593]
