Delhi H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 5,115 paid as interest along with instalment in respect of plot No. 182/14, Industrial Area, Chandigarh was of capital nature and was not allowable as revenue expenditure ?

Counsel Appeared

None, for the Assessee : R.D. Jolly and Ajay Jha, for the Revenue

JUDGMENT

ARIJIT PASAYAT, C.J.:

At the instance of assessee, the following question has been referred for opinion of this Court under s. 256(1) of the IT Act, 1961 (‘the Act’), by the Tribunal, Delhi Bench ‘B’ : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 5,115 paid as interest along with instalment in respect of plot No. 182/14, Industrial Area, Chandigarh was of capital nature and was not allowable as revenue expenditure ?”

The dispute relates to the asst. yr. 1976-77. The background facts essentially are as follows : The assessee is a private limited company which was incorporated on 24th June, 1966, and carried on the business of manufacture and sale of air-conditioning and refrigeration machinery. The previous year for the assessment year in question ended on 30th June, 1975. On an application made by the assessee, Estate Officer, Chandigarh Administration, by order dt. 11th Sept., 1972, allotted a plot in Industrial Area, Chandigarh for a consideration of Rs. 1,18,037. The assessee was required to pay 25 per cent of the premium immediately. The assessee paid the required amount and possession was given on 20th Oct., 1972. By a letter dt. 17th Aug., 1973 Chandigarh Administration required the assessee to pay first instalment of Rs. 24,336.25 which comprised of principal of Rs. 16,180.84, interest of Rs. 5,472.66 and ground rent of Rs. 2,682.75. Thereafter 2nd, 3rd, 4th and 5th instalments were required to be paid on 11th Sept., of the years 1974 to 1977. Along with the instalment, the assessee paid interest of Rs. 5,115 for the assessment year in question and claimed it as a revenue expenditure. The Income-tax Officer (in short “the ITO”) disallowed it, holding it to be of capital nature. Matter was carried in appeal before the Commissioner of Income- tax (Appeals) [in short the CIT(A)]. The said authority affirmed the AO’s conclusion. The assessee carried the matter in appeal before the Tribunal. The assessee’s stand was that the amount in question constituted revenue expenditure. The Tribunal did not accept the plea. It was held that the assessee had paid only certain instalments and the land in respect of which the instalments had been paid was yet to be used for the purpose of business. No construction of the factory had also taken place. Therefore, the payment was held to be of capital nature. On being moved for reference, the question as set out above has been referred for opinion.

We have heard the learned counsel for the Revenue. There is no appearance on behalf of the assessee in spite of notice. The learned counsel for the Revenue pointed out that as has been analysed by the Tribunal, the expenditure made is clearly of capital nature.

At this juncture it would be necessary to take note of s. 43(1) of the Act, Expln. 8. The provision reads as follows : “43. Definitions of certain terms relevant to income from profits and gains of business or profession.—In ss. 28 to 41 and in this section, unless the context otherwise requires— (1) ‘actual cost’ means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority : Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March, 1967, but before the 1st day of March, 1975, and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees.

xxx xxx xxx Explanation 8.—For the removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included, and shall be deemed never to have been included, in the actual cost of such asset.”

It is to be noted that the Explanation in question was inserted by the Finance Act, 1986 with retrospective effect from 1st April, 1974. This provision, no doubt, was not before the Tribunal when it dealt with the question. Therefore, it would be proper if the Tribunal considers the effect of this insertion and decides the claim of the assessee. The matter is, accordingly, remanded back to the Tribunal for fresh adjudication. While deciding the matter afresh, the principles laid down by the apex Court in Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC) : TC 17R.834 shall be kept in view by the Tribunal.

The reference stands disposed of.

[Citation : 252 ITR 583]