High Court Of Calcutta
Akash And Ambar Trust vs. CIT
Section 24(1)(vi)
Asst. Year 1985-86, 1986-87
Aloke Chakrabarti & S.K. Gupta, JJ.
IT Ref. No. 11 of 1998
24th November, 2003
Counsel Appeared
A.K. Roy Chowdhury with S. Roy, for the Assessee : P.K. Mallick with Dipak Deb, for the Revenue
JUDGMENT
Aloke Chakrabarti, J. :
The facts relevant for the present reference are that the business of the appellant is to construct flats and sell at profit. Interest has been paid by the appellant in pursuance of an agreement entered into between the appellant and M/s Sagar Shipping Co. Ltd., whereunder the appellant was paid an advance of Rs. 4,33,000 as price of the flat deliverable within a stipulated period. As the flat could not be delivered during the stipulated period under the agreement the appellant had to pay interest to M/s Surendra Overseas Ltd., with which M/s Sagar Shipping Co. Ltd. had since been amalgamated. It is contended by the appellant that income out of the business transaction should be assessed as business income and the interest amount of Rs. 6,74,602 should be deducted from the business income. This deduction has been claimed under s. 24(1)(vi) of the IT Act, 1961.
The two asst. yrs. 1985-86 and 1986-87 are involved in the present reference and by the respective assessment orders passed for the said years, the claim of the assessee has been refused. The appeals taken before the CIT(A) were decided by a common judgment rejecting the aforesaid contention. In the appeal before the Tribunal also the assessee did not succeed on the aforesaid ground. The Tribunal has also recorded a finding that there is no material to record a finding that the advance received by the assessee for sale of flat was utilised in the construction of the said flat. Heard Mr. A.K. Roy Chowdhury, learned senior counsel for the appellant, and Mr. P.K. Mallick, learned senior counsel for the respondent.
The contention of the appellant-assessee is that the amount paid to the assessee for purchase of the flat was utilised for construction of the flat and has to be treated as capital borrowed by the assessee for construction of the flat and, therefore, the interest paid thereon is liable to be deducted under s. 24(1)(vi). Learned counsel relied on the judgment in the case of CIT vs. Parekh Kothi Ltd. (1986) 52 CTR (Cal) 307 : (1986) 160 ITR 864 (Cal).
On behalf of the respondent-Revenue, it has been contended that this matter being a reference made under s. 256(1) of the IT Act, 1961, the findings of facts arrived by the Tribunal having reached a finality, cannot be reopened in this proceeding. It is further contended that though the amount paid by the assessee to the purchaser of the flat has been claimed to be an interest, the same is actually of the nature of liquidated damages or penalty as the amount had to be paid only because the assessee failed to deliver the flat to the purchaser within the stipulated period.
For considering the above contentions between the parties the relevant provision of law requires a consideration and s. 24(1)(vi) of the said Act is set out hereinbelow : “24. Deductions from income from house property.—(1) Income chargeable under the head ‘Income from house property’ shall, subject to the provisions of sub-s. (2), be computed after making the following deductions, namely : ……. (vi) where the property has been acquired, constructed, repaired, renewed, or reconstructed with borrowed capital, the amount of any interest payable on such capital.” Therefore, it appears that the law permits for computation of income chargeable under the head “Income from house property”, deduction of amount of interest payable on capital when property has been constructed on the said borrowed capital. In the present facts apparently the assessee did not construct the flat on borrowed capital. The assessee was paid in advance the price of the flat by its purchaser and on the materials on record, it appears that no interest was payable on the said advance payment of consideration money. The assessee has claimed that he was to pay interest only if the flat was not delivered within the stipulated time and, in the present case, the assessee having failed to deliver the flat within the stipulated time paid the interest amounting to Rs. 77,940. Considering the said facts and the law, we are of the opinion, that the amount so paid by the assessee to the purchaser was not interest payable on any borrowed capital with which the construction of the said flat was made. The Tribunal has come to a finding that there is no material on which a contrary finding could be arrived at. The payment made by the assessee to the purchaser on his failure to deliver the flat within the stipulated time, even if it is termed as interest, is in the nature of penalty or liquidated damages. In our opinion, in such facts deduction is not permissible under s. 24(1)(vi) of the IT Act, 1961.
In view of the above finding, the reference made to this Court by the Tribunal is answered in favour of the Revenue.
S. K. Gupta, J. :
I agree.
[Citation : 268 ITR 93]
