2002 (10) TMI 243 - AT - Income Tax

Summary

Issues Involved:
1. Claim of deduction of fees and interest on arrears payable to NDMC.
2. Disallowance of interest on account of interest-free advances made to Mukhamal Ram Narain.
3. Disallowance of expenditure incurred on construction of toilets in the cinema building.

Issue-wise Detailed Analysis:

1. Claim of Deduction of Fees and Interest on Arrears Payable to NDMC:
The main issue in the three appeals relates to the claim of deduction of fees and interest on arrears thereof payable to NDMC. The assessee, engaged in running a cinema hall, had a dispute with NDMC over the enhanced licence fee. The original agreement in 1970 set the licence fee at Rs. 5,51,111, which was increased to Rs. 13,50,000 in a fresh agreement signed in 1980. The assessee contested this enhancement, leading to a series of legal proceedings. The Delhi High Court, in 1987, directed the assessee to pay an additional 30% licence fee till the final disposal of the suit. The Assessing Officer disallowed the excess claim of licence fee and interest on arrears, arguing that the liability was not ascertained due to the ongoing dispute. The Commissioner (Appeals) deleted the additions, citing that the liability had arisen during the assessment year and was deductible, referencing the Supreme Court decision in Kedarnath Jute Mfg. Co. Ltd. v. CIT. However, the Tribunal reversed the Commissioner (Appeals)'s decision, stating that the liability was contingent and not ascertained until judicial adjudication or settlement. The Tribunal upheld the Assessing Officer's additions for the three assessment years.

2. Disallowance of Interest on Account of Interest-Free Advances Made to Mukhamal Ram Narain:
The second issue involved the disallowance of interest on interest-free advances made to Mukhamal Ram Narain. The Assessing Officer disallowed interest on the grounds that the advances were made to a sister concern in which the Director of the assessee-company was interested. The Commissioner (Appeals) deleted the disallowance, noting that the advances were made on grounds of business expediency under a lease agreement, which was accepted as genuine by the revenue authorities. The Tribunal upheld the Commissioner (Appeals)'s decision, finding no grounds to interfere with the conclusion that the advances were made for business purposes.

3. Disallowance of Expenditure Incurred on Construction of Toilets in the Cinema Building:
The third issue was the disallowance of expenditure on constructing toilets in the cinema building, which the Assessing Officer treated as capital expenditure. The Commissioner (Appeals) deleted the disallowance, treating the expenditure as revenue in nature. The Tribunal agreed with the Commissioner (Appeals), referencing a previous Tribunal order that held similar renovation expenses as revenue expenditure. The Tribunal upheld the deletion of the disallowance.

Conclusion:
The Tribunal's judgment resulted in the partial allowance of the revenue's appeals, specifically sustaining the additions made by the Assessing Officer regarding the enhanced licence fee and interest thereon, while dismissing the revenue's grounds on the disallowance of interest on advances to Mukhamal Ram Narain and the expenditure on construction of toilets.