1997 (8) TMI 22 - HC - Income Tax

Summary

Issues:
1. Whether interest on unpaid purchase price received as part of consideration of sale is not 'any profit or gains' arising on transfer of a capital asset within the meaning of section 45 of the Income-tax Act, 1961?
2. Whether the unpaid sale consideration was nothing but a loan and the interest accruing thereon was on money lent by the assessee?
3. Whether the receipt of Rs. 1,65,596 should be treated as capital receipt as it was in the nature of damages or moneys withheld between the date of sale and date of payment of full consideration?

Analysis:

The case involved the assessment of interest received by a partnership firm from the sale of a tea estate. The firm treated the interest as a capital receipt, while the tax authorities considered it as revenue. The firm contended that the interest was part of the sale consideration and hence capital in nature. However, the Income-tax Officer treated the entire interest amount as revenue under other sources. The Inspecting Assistant Commissioner upheld this view, considering the interest as revenue. On appeal, the Commissioner of Income-tax (Appeals) and the Tribunal also supported this stance, emphasizing that the interest was not part of the sale consideration and hence taxable as revenue.

The Tribunal held that the interest on the unpaid amount was not part of the cost price of the tea estate sold and did not fall under section 45 of the Income-tax Act, as it did not constitute "profits and gains" from the transfer of a capital asset. The Tribunal reasoned that the unpaid amount after delivery of possession amounted to a loan by the seller to the purchaser, making the interest a revenue receipt. Consequently, the Tribunal dismissed the appeal filed by the assessee.

In response to the arguments presented, the court referred to precedents to support the view that interest received on the unpaid purchase price, post-sale completion, was revenue in nature and not part of the sale consideration. Citing cases like CIT v. Vishnudayal Dwarkadas and CIT v. Union Land and Building Society Pvt. Ltd., the court emphasized that interest paid after sale completion did not form part of the sale consideration and was therefore not capital in nature. The court affirmed the Tribunal's decision, stating that the interest received was revenue and not subject to section 45 of the Act.

Conclusively, the court answered the first question in the affirmative, against the assessee, rendering the subsequent questions redundant. The court found no grounds to overturn the Tribunal's decision, affirming that the interest received was revenue and not capital in nature. No costs were awarded, and the counsel's fee was fixed at Rs. 1,000.