Income Tax Appellate Tribunal - Chandigarh
Master Sukhwant Singh vs Income Tax Officer on 29 August, 1997
Equivalent citations: (1998)61TTJ(CHD)642
ORDER
This is an appeal by the assessee against the order dated 3-2- 1993 passed by the Deputy Commissioner (Appeals), Chandigarh Range, Chandigarh.
2. In the first three grounds of appeal, the dispute is with regard to the action of the Deputy Commissioner (Appeals) in confirming the disallowance of Rs. 66,667 made by the assessing officer on account of interest payable to the estate office under section 24(1)(vi) of the Income Tax Act (hereinafter referred to as the Act).
3. Briefly, the facts are that the assessee along with two other co-owners, namely, Smt. Harjit Kaur and Shri Harpal Singh Ahluwalia, purchased one commercial site No. 461-462, Sector 35- C, Chandigarh in open auction held on 13-3-1988 for a sum of Rs. 21,32,000, 99 years lease-hold basis. As per the allotment letter issued by the Estate Officer, Chandigarh, the purchasers were required to deposit 25 per cent of the consideration at the time of auction. The remaining amount was payable by the allottees within 30 days and no interest was payable on this payment. Alternatively, as per clause 5 of the allotment letter, the balance amount can be paid in three equal yearly instalments along with interest at 7 per cent per annum. Before the assessing officer, the assessee claimed that the interest paid on instalments was interest on borrowed capital and as such, admissible as deduction against income from house property under section 24(1)(vi), relying on the decision of Honble Supreme Court in the case of Shew Kissan Bhatter v. CIT (1973) 89 ITR 61 (SC) The assessing officer, however, rejected the claim of the assessee holding that the instalments payable by the assessee to Estate Officer on account of payment of bid money cannot be treated as borrowed capital because there was no relationship of borrower and lender between the assessee and the Estate Office. The assessing officer, accordingly, disallowed the claim of deduction on account of interest amounting to Rs. 66,667 after referring to the decision of the Honble Supreme Court in the case of Bombay Steam Navigation Co. (1953) (P) Ltd. v. CIT (1965) 56 ITR 52 (SC), as well as the decision of Gujarat High Court in the case of CIT v. Rajkot Seeds, Oil & Bullion Merchants Association Ltd. (1975) 101 ITR 748 (Guj) The assessee appeals and the learned first appellate authority upheld the action of the assessing officer for the reasons given in detail in the impugned order. Aggrieved, the assessee has filed the second appeal before me.
4. Shri P.C. Jain, chartered accountant, the learned representative of the assessee, submitted that the point in dispute involves the interpretation of section 24(1)(vi). It was submitted that the Deputy Commissioner (Appeals) in the assessment year under consideration has adjudicated the issue against the assessee by upholding the action of the assessing officer in disallowing the claim of interest paid to the estate officer on the balance instalments in relation to the property whose income is being offered by the assessee for taxation under the head Income from house property. It was submitted that, however, the Commissioner (Appeals) in assessees own case for assessment year 1992-93 has adjudicated this issue in favour of the assessee and has allowed deduction of similar amount of interest in the assessment year 1992-93. Shri Jain referred to the definition of interest given in section 2(28) and submitted that in the definition it is mentioned interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised ? From the said definition, Shri Jain submitted that with regard to the instalments payable to the Estate Officer, the assessee has incurred a debt and any interest paid in relation to that debt should be allowable under section 24(1)(vi) and should be deemed as interest paid on borrowings for the purpose of acquisition of the commercial site over which construction was made by the assessee along with the other co-owners and the property was given on rent and the assessee was showing his share of rental income as income under the head House property. Accordingly, it was pleaded that the interest payable to the Estate Officer was a legitimate allowable deduction. Shri Jain further relied on Boards Circular No. 471 issued from F.No. 207/27/85-IT(A-II) dated 15-10-1986 for the proposition that when flats are acquired by an allottee under the self-financing scheme of the Delhi Development Authority, it tantamounts to purchase and it is also construction by the Delhi Development Authority allottee. Drawing analogy from this, Shri Jain submitted that the money payable to the Estate Officer can be construed as the money spent on behalf of the assessee for acquiring the commercial site over which construction was carried on by the assessee along with other co-owners and as such any interest paid was an allowable deduction under section 24(1)(vi) which reads as under :
"24(1) Income chargeable under the head Income from house property shall, subject to the provisions of sub-section (2), be computed after making the following deductions, namely :
(vi) where t(e property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital."
Shri Jain submitted that the word used is capital borrowed and not money borrowed and capital is a much wider term than money. Shri Jain then referred to the meaning assigned to the word "capital" in the Oxford Dictionary, Webster New 20th Century Dictionary and Law Lexicon and also the decision of the Honble Supreme Court in the case of Lohia Machines Ltd. v. Union of India (1985) 152 ITR 308 (SC) and submitted that interest paid on balance instalment was, in fact, the interest paid on capital which was used by the assessee for acquiring the commercial site over which construction was subsequently raised and the property was given on rent to earn income assessable under the head Income from house property. Shri Jain further relied on the decision of the Honble Supreme Court in the case of CIT v. Podar Cement (P) Ltd. (1997) 92 Taxman 541 (SC), for the proposition that for the purpose of section 22, owners is a person who is entitled to receive income in his own right and as such, where a property is handed over to a purchaser to enjoy fruits of that property, the purchaser is to be treated as owner of that property for the purpose of section 22 even though no registered document as required under section 54 of the Transfer of Property Act or Registration Act are executed. Drawing support from these observations, Shri Jain submitted that the assessee alongwith the co-owner has, in fact, become owner of this property and as such the balance of instalment money payable to the Estate Officer along with interest was a debt incurrent in relation to this property and any interest paid in relation to this property was an allowable deduction under section 24(1)(vi).
5. Shri Jain further submitted that under the Wealth Tax Act, when such a property is valued for the purpose of determining the market value as on the valuation date, the instalments payable to the Estate Officer are treated as debts incurred and allowed as a deduction from fair market value of the property to arrive at the value liable to wealth-tax. Accordingly, it was pleaded that the learned Estate Officer (Appeals) was not justified in denying the claim of deduction amounting to Rs. 66,667 on account of interest payable by the assessee to the Estate Officer, particularly when no such disallowance was made in the case of other two co-owners and also the fact that the Commissioner (Appeals) in the case of the assessee for the assessment year 1992-93 had allowed relief to the assessee. Reliance was also placed on the decision of the Honble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT (1980) 124 ITR (SC).
6. Smt. Parneet Mahal, the learned Departmental Representative, on the other hand, supported the order of Deputy Commissioner (Appeals) and further submitted that in view of the specific language used in section 24(1)(vi), the allowance under clause (vi) is only in respect of interest payable on borrowed capital and requires the relationship of borrower and lender. It was submitted that the relationship between the assessee and the Estate Officer is not of a borrower and a lender but of a purchaser and seller and as such, it cannot be said that interest paid on the deferred instalments by the assessee would entitle him to deduction under section 24(1)(vi) as the instalment payable cannot be treated as borrowed capital. She accordingly supported the order of Deputy Commissioner (Appeals).
7. I have considered the rival submissions and have also gone through the orders passed by the assessing officer as well as the Deputy Commissioner (Appeals) along with relevant clauses of allotment letter.
Clause 5 of the allotment letter is as under :
"The lease shall be deemed to have commenced from the date of auction. In case, it is intended to pay the premium in instalments, the balance of 75 per cent of the premium together with interest thereon at 7 per cent per annum shall be payable in three equated annual instalments, the first instalment being payable at the expiry of one year from the date of auction. Interest shall accrue from the date of auction."
Clause 8 reads as under :
"In the event of non-payment of any instalment of premium or rent by the 10th of the month following the month in which it falls due or such extended period as may be allowed by the Estate Officer but not exceeding three months in all from the date on which the instalment was originally due, the Estate Officer, may issue a notice to the lessee calling upon him to show cause as to why the lease may not be cancelled and the site resumed and the amount already paid forfeited to the government.""
Clause 8A is to the following effect :
"After considering the cause, if any, shown by the lessee in pursuance of the aforesaid notice, the Estate Officer may either allow payment of instalment/rent with penalty which may extend to 100 per cent of the amount due and interest @ 12 per cent per annum, for the delayed period, order cancellation of lease and forfeit the whole part of the amount already paid."
8. What has to be adjudicated in this apeal is as to whether the interest paid on instalments would amount to interest paid on borrowed capital or not for the purpose of claiming deduction under section 24(1)(vi). It is no doubt true that no direct transfer of money has taken place from the Estate Officer to the assessee but in the sense that assessee has been allowed to enjoy the possession of property without paying its full value, it can be deemed to be a debt incurred by the assessee for acquiring the property. In other words, the capital has passed in the hands of the assessee in the form of lease property and not money. The money value of such capital asset stands determined in the allotment letter itself. The rate of interest also stands determined in the allotment letter itself. Accordingly, in my considered opinion, the transaction of allotment of property to the assessee on instalment basis does give rise to the relationship of lender and borrower between Estate Officer and the assessee to the extent of property passed on by the Estate Officer to the assessee, the price of which has not been paid stands determined. This unpaid price/instalment would constitute debt incurred by the assessee and, accordingly, interest paid thereon would be an admissible deduction under section 24(1)(vi), read with section 2(28A), of the Income Tax Act, 1961. Accordingly, I will hold that the departmental authorities were unjustified in disallowing the claim of Rs. 66,667 on account of interest payable on instalments to the Estate Officer, Chandigarh, which is directed to be allowed.
9. Ground of appeal No. 4 relates to the action of the departmental authorities in charging interests under sections 234A, B & C. No specific arguments were advanced in support of above ground which is accordingly dismissed having not been seriously pressed. The assessing officer will, however, recalculate the interest, if any, chargeable under sections 234A, B & C after giving appeal effect to this order.
10. In the result, apeal stands allowed in the above terms.