JUDGMENT
1. This is an income-tax reference under Section 256(2) of the Income-tax Act, 1961. The question of law referred to us is as follows :
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in holding that the assessee's one-fourth share in the composition fee of Rs. 53,179 was an admissible deduction under Section 24(1)(ii) from her property income ?"
The facts of the case are that the assessee is an individual enjoying income from money-lending business. The original assessment for the assessment year 1972-73 was made on total income of Rs. 19,020 on February 21, 1973. Subsequently, the Department was of the opinion that the composition fee paid by the assessee to Cantonment Board in respect of house property had been wrongly allowed and hence, action was taken under Section 148 of the Income-tax Act, 1961, by issuing notice on September 17, 1974. In reply to the said notice, the assessee disclosed the same income in the original return, that is, Rs. 19,015. A sum of Rs. 53,170 had been paid by way of composition fee for the said house property and the assessee's share was one-fourth. The claim of the assessee was that it was revenue expenditure and as such was allowable. The Income-tax Officer did not accept this contention and he added Rs. 13,236 being 1/4th share of Rs. 53,179. The assessee filed an appeal before the Appellate Assistant Commissioner which was rejected, but on further appeal, the Tribunal by its order dated February 25, 1976, decided against the Department. The Department then filed an application under Section 256(1) which was rejected. Thereafter, the Department filed reference application under Section 256(2) which was allowed and the question referred to above was called by this court.
2. We have heard Sri Shekhar Srivastava, learned standing counsel for the Department. None appears for the assessee. It appears that the original lease deed was of 1932 (sic) in which there was a clause that the construction would be made in two years. The original owner has obtained renewal and hence, the construction should have been made by November, 1963. Before the expiry of that period, the new owners applied for further extension and pending these proceedings, started construction of the building. No reply was received from the Government and in the meantime, the building was constructed in 1968 and the four owners paid Rs. 53,179 as composition fee. The Appellate Tribunal held that this payment was allowable while computing income from property, as it was a valid deduction under Section 24(1)(ii) of the Income-tax Act, 1961.
3. The submission of learned counsel for the Department is that the payment was made by way of composition and as such should not be treated as legitimate deduction. We do not agree with this submission. Composition fee is often paid by a person because he wants to avoid harassment and unnecessary controversy in the matter, and it is not that the payment of composition fee means that the person has accepted that he committed some illegality. Hence, in our opinion, payment of composition fee was a legitimate deduction and it was rightly allowed by the Tribunal. In view of this, we find no infirmity in the order of the Tribunal and we answer the reference in favour of the assessee and against the Department. There shall be no order as to costs.