2008 (5) TMI 309 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reopening the assessment.
2. Non-deduction of license fees of Rs. 1,42,623.
3. Non-deletion of interest levied under s. 234A.

Detailed Analysis:

1. Validity of Reopening the Assessment:
The assessee had initially raised grounds regarding the validity of reopening the assessment. However, these grounds were not argued by the learned counsel during the hearing. Consequently, the tribunal held that the assessee did not wish to pursue these grounds, and they were dismissed.

2. Non-Deduction of License Fees of Rs. 1,42,623:
- Assessment Order Context: The assessee claimed a deduction of Rs. 1,42,623 under "Income from house property" for interest paid to DLF Universal Ltd. (DLF). The AO required an explanation for this deduction. The assessee explained that the amount represented interest on loan installments for property purchase, thus deductible as interest on borrowed capital under s. 24.
- AO's Decision: The AO pointed out that the agreement with DLF termed the payment as a license fee, not interest on borrowed capital. The AO distinguished this case from CIT vs. Sunil Kumar Sharma, concluding that the payment was part of the property cost and not deductible under s. 24(1)(vi).
- CIT(A) Appeal: The CIT(A) upheld the AO's decision, stating that the license fee was penal interest for delayed installment payments and not interest on a loan from DLF.
- Tribunal's Analysis: The tribunal examined the agreement and noted that the assessee was termed a licensee under a 10-year payment plan, and the fee was calculated at 18% per annum on outstanding installments. The tribunal referenced the case of Sunil Kumar Sharma, which allowed deduction of interest on unpaid purchase price treated as borrowed capital. The tribunal concluded that the unpaid purchase price constitutes a debt, and any payment related to it is interest deductible under s. 24(1)(vi). Thus, the tribunal allowed the deduction of Rs. 1,42,623.

3. Non-Deletion of Interest Levied Under s. 234A:
This ground was not argued by the learned counsel and was considered consequential. The tribunal directed the AO to recalculate the interest after giving effect to the tribunal's order.

Conclusion:
The appeal was partly allowed, with the tribunal permitting the deduction of Rs. 1,42,623 under s. 24(1)(vi) and directing the AO to recalculate interest under s. 234A. The grounds regarding the validity of reopening the assessment were dismissed as they were not pursued by the assessee.