2000 (2) TMI 182 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of deduction of Rs. 15,00,000 under section 48(i) for computing capital gains.
2. Exclusion of the value of the lift from the cost of the immovable property.
3. Classification of interest income of Rs. 1,66,014 as income from other sources.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction of Rs. 15,00,000 under Section 48(i):

The primary issue in the appeal was the disallowance of a deduction of Rs. 15,00,000 under section 48(i) for computing capital gains on the sale of flats in the Suraj Plaza building to the Bank of Baroda. The assessee claimed this amount as compensation paid to Amora Chemicals Pvt. Ltd. for termination of tenancy rights. The Assessing Officer disallowed the claim, reasoning that the assessee HUF and Amora Chemicals were closely connected, and there was no obligation for such a payment. The CIT(A) upheld this disallowance, concluding that the payment did not represent expenditure incurred wholly and exclusively in connection with the sale transaction.

The Tribunal examined the facts, noting that Amora Chemicals was controlled by the assessee HUF, and the negotiations for renting and selling the premises were conducted by key members of the HUF. The Tribunal emphasized that the payment of Rs. 15,00,000 was not related to the sale transaction but was instead aimed at reducing tax liability. The Tribunal upheld the disallowance, stating that the payment did not satisfy the requirements of section 48(i) as it was not incurred wholly and exclusively in connection with the transfer.

2. Exclusion of the Value of the Lift from the Cost of the Immovable Property:

The second issue concerned the exclusion of the value of the lift, amounting to Rs. 2,92,325, from the cost of the immovable property. The CIT(A) observed that since the lift had not been sold, its value should be excluded from the cost of the property as reflected in the balance sheet. The Tribunal found no infirmity in this finding and dismissed this ground of appeal.

3. Classification of Interest Income of Rs. 1,66,014 as Income from Other Sources:

The third issue was whether the interest income of Rs. 1,66,014 accrued on the savings account, where the advances from the purchasers were deposited, should be classified as income from property or income from other sources. The assessee argued that this interest should be assessed as property income. However, the Tribunal held that the interest earned from the bank on the savings account should be classified as income from other sources, as the intrinsic character of the income was not altered by the source of the deposit.

Conclusion:

The Tribunal dismissed the appeal of the assessee on all grounds. The disallowance of the Rs. 15,00,000 deduction under section 48(i) was upheld, the exclusion of the lift's value from the property cost was affirmed, and the classification of interest income as income from other sources was maintained.