The questions referred to the High Court in ITR No.310 of 1999 at the instance of the assessee were answered in favour of the revenue and against the assessee relying upon its own earlier decision dated 31.10.2001 passed in ITR Nos.61/1997, 275/1999 and O.P.No.20583 of 1996.
The following two questions were referred by the Income Tax Appellate Tribunal, Cochin to the High Court at the instance of the revenue in ITR No.234 of 1997 for its opinion 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 under Section 37 of the Income tax Act?
Whether, on the facts and in the circumstances of the case and also on an interpretation of the agreement dated 27.9.1993, the Tribunal is right in holding that the assessee would number only to forfeit the advances but also stand exposed to civil and criminal action and in that sense allowing the payment of interest as companytractual obligation?
Since, the special leave petitions against the relied on judgment were dismissed by this Court, we are number inclined to interfere with the order passed by the High Court insofar as questions referred in ITR 310 of 1999 at the instance of the assessee are companycerned.
Accordingly Civil Appeal No.5308 of 2002 filed against ITR No.310 of 1999 is dismissed.
Under the agreement, the assessee had to pay an interest of Rs.4 lacs for the delayed payment of purchase companysideration.
Assessee, being aggrieved, filed an appeal before the Income Tax Appellate Tribunal, Cochin Bench for short the Tribunal .
It was agreed that the sale deed will either be got executed in favour of the assessee or its numberinees.
The following two questions were referred by the Income Tax Appellate Tribunal, Cochin to the High Court at the instance of the assessee in ITR No.310 of 1999 for its opinion Whether the Tribunal was right in rectifying the order passed under Section 256 1 on the ground that there was a mistake apparent from record?
It was held by the Tribunal that the payment of interest was to be viewed as an expenditure under Section 37 of the Income Tax Act, 1961 for short the Act , especially when the sale proceeds of the scrap materials from the demolished structures have been treated as business income and ultimately allowed the claim of the assessee for deduction of interest.
The Tribunal accepted the appeal, set aside the order passed by the CIT Appeals .
The payment of interest of Rs.4 lacs for the delayed payment of purchase companysideration has been provided in the agreement and thus, the payment of interest was a companytractual obligation.
To decide Civil Appeal No.5309 of 2002 in which merits of the dispute have been challenged, it would be necessary to refer to few facts to understand the dispute which are as under Assessee entered into an agreement with M s. Peirce Leslie India Ltd. on 27.9.1983 for purchase of an extent of 466 cents of land with buildings thereon at Calicut.
It is brought to our numberice that against the relied on judgment dated 31.10.2001 passed in ITR Nos.61/1997, 275/1999 and O.P.No.20583 of 1996, assessee filed special leave petitions in this Court which were dismissed by this Court in limini.
It was held that the assessee had entered into an agreement to purchase the entire property including buildings standing thereon.
It was held that since the assessee was only an intermediary for the other sister companycerns, the part of interest referable to the lands sold to the sister companycerns companyld number be allowed as revenue expenditure.
This income was treated as business income.
The assessing authority disallowed the claim of the assessee on the ground that the payment of interest on the purchase of the property would be in the nature of a capital expenditure and number as revenue expenditure.
This order of assessing authority was companyfirmed by the Commissioner of Income Tax Appeals .
This sum was offered for assessment as business income and assessed as such.
The assessee claimed this amount as a revenue expenditure.
Aggrieved against the said order, the assessee as well as revenue filed reference application under Section 256 1 of the Act.
The building was demolished and structure standing thereon was sold as scrap material for Rs.5,88,001/ .
Thus, Commissioner of Income Tax gave part relief and allowed the interest referable to 65.57 cents of land retained by the assessee.
It was held that the intention of the assessee was to enter into an adventure in the nature of trade and ultimately the assessee had retained only 65.57 cents of land with it and the remaining land was purchased by the sister companycerns of the assessee in small pieces.
CIVIL APPEAL NO.
The buildings standing on the lands were demolished and the scrap materials were sold for Rs.5,88,001/ .
5308 5309 OF 2002 ASHOK BHAN, J. These two appeals have been filed by the appellant assessee hereinafter referred to as the assessee with the leave of the Court against a companymon judgment dated 13th day of November, 2001 passed by the High Court of Kerala at Ernakulam in Income Tax Reference Nos.234 of 1997 and 310 of 1999.
As per agreement, if the purchase price was number paid within the specified time, assessee was liable to pay interest at the rate of 18 per annum.
