2016 (5) TMI 1507 - AT - Income Tax

Declaration u/s 158A(1) - confirming rental income from M/s. Choradia Fashions Pvt. Ltd., in respect of Shiv Sagar Estate particularly when that income was taxed in the hands of Shri J M Shah as the property was already transferred by the assessee to him on 1st Jan. 2005 in pursuance of permission of the appropriate authority under section 269UL(3) of the Act dated 4th March 1995 - Identical question of law is pending before the Hon ble High Court - HELD THAT - In view of the admission of substantial question of law on the issue in hand, by the Hon ble High Court we allow the declaration of the assessee filed u/s. 158A(1) and direct that whatever will be the decision from the Hon ble Jurisdictional High Court will be binding upon the respective parties. However, since the issue has been decided against the assessee, for the time being (till the outcome from the Hon ble High Court) the issue is decided against the assessee. Disallowance of interest on customs duty - whether the interest on delayed payment is allowable expenditure or not? - HELD THAT - On the issue of interest for delayed payments reference may be made to Triveni Engineering Works Ltd. vs. CIT 1983 (10) TMI 49 - ALLAHABAD HIGH COURT ; CIT vs. Laxmidevi Sugar Mills Pvt. Ltd. 1999 (3) TMI 41 - ALLAHABAD HIGH COURT ; Raj Narayan Agarwal vs. CIT 2002 (8) TMI 59 - DELHI HIGH COURT ; CIT vs. Delhi Automobiles 2004 (5) TMI 16 - DELHI HIGH COURT wherein interest paid on delay in paying sales tax was held to be deductible. Admittedly, there are contrary decisions also wherein it was held that interest on delayed payments is not an allowable deduction. There are contrary decisions also wherein it was held that interest on delayed payments is not an allowable deduction. If this issue is analyzed with respect to section 43B of the Act, the scope and effect of the amendment made in the first proviso to section 43B, by the Finance (No.2) Act 1998, have been elaborated in departmental Circular No. 772 dated 23rd December 1998, wherein certain expenses were held to be allowable only on actual payment. There is no dispute, in the present appeal that interest was paid by the assessee. It is different matter that the assessee carried the matter in appeal before the Hon ble High Court or before the Hon ble Apex Court and contested a legal battle, though failed, but fact remains that the customs duty as well as interest on delayed payments was made by the assessee. Demand was raised by the department on 18.09.2006 therefore liability arose in the present assessment year. Thus, the deduction has to be allowed either u/s. 37 or u/s. 43B of the Act. Therefore, this ground of the assessee is allowed.

Summary

Issues:
1. Confirmation of rental income from a transferred property.
2. Disallowance of interest on customs duty.

Issue 1: Confirmation of Rental Income from Transferred Property

The appeal was against the order dated 23/05/2012 for A.Y. 2007-08 and 2008-09 regarding rental income from a property transferred to another party. The first ground raised was about confirming rental income from M/s. Choradia Fashions Pvt. Ltd. The assessee argued that the income was already taxed in the hands of the transferee. The High Court had admitted a substantial question of law related to this issue. The Tribunal allowed the declaration filed by the assessee under section 158A(1) of the Act, stating that the decision of the High Court would be binding. However, as the issue had been decided against the assessee, it was decided against them until the High Court's decision.

Issue 2: Disallowance of Interest on Customs Duty

The second issue pertained to the disallowance of interest on customs duty amounting to a significant sum. The Collector of customs had levied customs duty, penalty, and interest on goods imported by the assessee in F.Y. 1988-89. The Assessing Officer disallowed the interest amount paid by the assessee, stating that the liability crystallized in F.Y. 2001-02. The assessee contended that the interest payment was a part of the liability of customs duty. The Tribunal analyzed the facts and legal precedents, including the decision of the Hon’ble Apex Court in Mahalaxmi Sugar Mills Co. vs. CIT, which held that interest paid for delayed payment of taxes is deductible. Various other decisions were cited to support the deduction of interest on delayed payments.

The Tribunal concluded that the payment of interest was an allowable deduction under section 37(1) of the Income Tax Act. The Tribunal also discussed the implications of section 43B of the Act and held that the interest payment made by the assessee should be allowed as a deduction. Therefore, the ground raised by the assessee regarding the disallowance of interest on customs duty was allowed.

In summary, the Appellate Tribunal ITAT Mumbai's judgment addressed issues related to the confirmation of rental income from a transferred property and the disallowance of interest on customs duty. The Tribunal allowed the declaration filed by the assessee regarding the rental income issue, pending the High Court's decision. Additionally, the Tribunal allowed the deduction of interest on customs duty, citing legal precedents supporting the deductibility of interest on delayed payments.