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2001 DIGILAW 649 (KER)

COMMISSIONER OF INCOME TAX v. KERALA ROAD LINES

2001-11-13

C.N.RAMACHANDRAN NAIR, P.K.BALASUBRAMANYAN

body2001
JUDGMENT Balasubramanyan, J. Income Tax Reference No. 234 of 1997 is at the instance of the revenue. The questions referred to us are the following : "1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that the assessee is entitled to deduct the entire amount of interest as revenue expenditure u/s 37 of the Income Tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case and also on an interpretation of the agreement dated 27-9-1983, the Tribunal is right in holding that the assessee would not only to forfeit the advances but also stand exposed to civil and criminal action and in that sense, allowing the payment of interest as contractual obligation?" Income Tax Reference No. 310 of 1999 is at the instance of the assessee. The questions referred to us are the following: "1. Whether the Tribunal was right in rectifying the order, passed u/s 256(1) on the ground that there was a mistake apparent from record ? 2. Whether, the Tribunal was right in holding that it has inherent power for rectifying the order u/s 256(1) for rendering justice ?" 2. We may straight away notice that the questions referred to us in Income Tax Reference No. 310 of 1999 are governed by our decision dated 31-10-2001 in Income Tax Reference Nos. 61 of 1997 and 275 of 1999 and O.P. No. 20583 of 1996. In the light of the reasoning adopted in that judgment the questions referred to us in Income Tax Reference No. 310 of 1999 are answered in favour of the revenue and against the assessee. 3. However, we deal with Income Tax Reference No. 234 of 1997. The assessee entered into an agreement for purchase of an extent of 466 cents of land with Pierce Leslie (India) Ltd. on 27-9-1983. The assessee agreed to purchase the land at the rate of Rs. 12,999 per cent. The assessee paid towards consideration a sum of Rs. 5 lakhs on 27-9-1983, which was also to be treated as non-refundable advance, in case the sale could not go through. The balance sale consideration was to be paid by the assessee in instalments as provided for in the agreement. The last of the instalments of Rs. 14,57,534 was to be paid before 31-12-1984. 5 lakhs on 27-9-1983, which was also to be treated as non-refundable advance, in case the sale could not go through. The balance sale consideration was to be paid by the assessee in instalments as provided for in the agreement. The last of the instalments of Rs. 14,57,534 was to be paid before 31-12-1984. There was a provision in the agreement that if the instalments were not paid in time, the assessee would be liable for interest thereon. There was a stipulation in the agreement that the vendor would extend the time for payment of final instalment to 31-3-1985 if the circumstances so required. The agreement further provided that the deed of sale was to be executed and registered by the vendor in favour of the assessee or the nominee or nominees of the assessee. It is stated that pursuant to this agreement, the assessee took possession of the property and sold to others, the building therein for scrap value. Thereafter, the assessee took a sale deed in its name in respect of 65.57 cents of land and sale deeds in respect of the balance extent of 400.43 cents were taken in the names of sister concerns of the assessee. 4. The assessee claimed that the assessee had to pay a sum of Rs. 4 lakhs as interest to the vendor pursuant to the agreement for sale, and this payment of Rs. 4 lakhs was liable to be deducted as business expenditure. The assessing officer rejected the claim of the assessee, holding that the entire expenditure was capital expenditure and, hence, the assessee was not entitled to deduction. On appeal by the assessee, the Commissioner (Appeals) took the view that the interest relatable to 65.57 cents of land which was actually taken assignment of by the assessee itself was relatable to the business expenditure of the assessee and, hence, the assessee was entitled to a deduction of Rs. 57,649. As regards the balance, interest paid by the assessee to the vendor, the Commissioner (Appeals) took the view that the same could not be treated as business expenditure and the assessee was not entitled to deduction. The assessee appealed to the Tribunal. 57,649. As regards the balance, interest paid by the assessee to the vendor, the Commissioner (Appeals) took the view that the same could not be treated as business expenditure and the assessee was not entitled to deduction. The assessee appealed to the Tribunal. The Tribunal took the view that since the assessee was only intermediary in the transactions and since the assessee had accounted for the amount realised by the assessee by sale of the building in the property as its business income, the interest paid by the assessee to the vendor can be allowed as business expenditure u/s 37. It is in this context that the questions referred to us for decision have to be answered. 5. The assessee is not in real estate business. It is only in the business of running buses and lorries for hire. The assessee at no time acquired any title over 400.43 cents. Therefore, the assessee has not acquired any asset, in respect of the extent, sold by the vendor to the nominees. The assessee has also not incurred any business expenditure, because the assessee was not in the business of real estate dealings. It, therefore, prima facie appears to us that the interest paid by the assessee to the vendor in this case is not the business expenditure, coming within section 37(1). In this view, it appears to us to be unnecessary to decide the question, whether this could be considered as capital or revenue expenditure incurred by the assessee. In this situation, we need not finally answer the question whether this would be capital expenditure, and the controversy, whether it is capital expenditure or revenue expenditure, does not arise. 6. On the facts, it is, therefore, clear that this is not a business expenditure to which the assessee is entitled to deduction u/s 37(1). In view of this position, we answer the questions referred to us for decision in Income Tax Reference No. 234 of 1997, in favour of the revenue and against the assessee. The references are answered as above.