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TMI Blog2008 (5) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... law in not directing the AO to allow the deduction of license fee of Rs. 1,42,623 paid by the appellant on the outstanding loan instalments, in respect of purchase of house property, under s. 24(1)(iv) of the Act. 2.1 That the CIT(A) erred on facts and in law in not appreciating that the license fee was not in the nature of interest expense only, as the same was payable on borrowed funds only." 2.1 In this connection, it is mentioned in the assessment order that the assessee had claimed a deduction of Rs. 1,42,623 in computing the income under the head "Income from house property" in respect of interest paid to DLF Universal Ltd. (hereinafter called the DLF). The assessee was required to explain as to how this amount was deductible. It was explained that the amount represented interest on loan instalments outstanding in respect of purchase of property, which constituted interest paid on borrowed capital and, therefore, the same was deductible in computing the income from house property. Reliance was placed on the decision of Hon'ble Punjab Haryana High Court in the case of CIT vs. Sunil Kumar Sharma (2002) 173 CTR (P H) 368 : (2002) 254 ITR 103 (P H). The explanation of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase or purchase under 10 years payment plan. He referred to cl. 10 of the agreement providing that the allottees shall be liable to pay the company (the DLF) interest @ 20 per cent per annum on all amounts due and payable by the allottees under the agreement for the period of delay in making the payments. It was pointed out that this clause was not applicable to the assessee. Thereafter, he referred to cl. 17 which provided that the possession of the premises shall be delivered to the allottee as a licensee in the case where the apartment has been allotted under 10 years payment plan. It was mentioned that since the assessee had opted for 10 years payment plan, he become a licensee under the agreement as per cl. 17 thereof. He also referred to cl. 21 (a), which provided that the allottee shall upon taking possession of the premises, pay to the company by due dates monthly license fee which shall be calculated @ 18 per cent per annum on the outstanding instalments then due on the diminishing balance basis for each quarter. It was mentioned that in view of the status of the assessee as a licensee under cl. 17, he became liable to pay license fee @ 18 per cent per annum on the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if a buyer instead of raising a loan from a third person, enters into an agreement with the seller to pay the sale price in instalments along with interest due thereon. It was further pointed out that the moment such an arrangement is entered into, the seller becomes the lender qua the unpaid purchase price and the purchaser becomes the borrower. It is because of this reason that the instalments carry interest from the date of sale to the date of the payment. It was also pointed out that s. 24(1)(vi) cannot be interpreted narrowly to defeat the very purpose for which it is enacted. The Court considered a number of cases, including that of Metro Theatre (Bombay) Ltd. vs. CIT (1946) 14 ITR 638 (Bom). In that case, the Hon'ble Bombay High Court rejected the claim of deduction of interest on the ground that in terms of the agreement, the ownership in the property had not yet passed to the assessee. The Court also considered the case of CIT vs. Four Fields (P) Ltd. (1998) 144 CTR (P H) 676 : (1998) 231 ITR 262 (P H). In that case, the property was purchased along with other assets and the liabilities were also taken over by one partner on the dissolution of the firm. The dissolution dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was his case that the assessee had not borrowed any money and, therefore, there was no question of payment of any interest on the borrowed capital for purchase, etc. of the property. He referred to the various clauses of the agreement, which provided for two kinds of interests, one under cl. 10 and the other under cl. 21(a). The rates of interest under the two clauses were different. It was also pointed out that the certificate of the DLF, terming the amount as interest, was against the provision contained in cl. 21(a) of the agreement between the assessee and the DLF. It was argued that the amount paid by the assessee was nothing but purchase consideration and the method of calculation of the purchase consideration in case of purchase under 10 years payment plan will not convert a part of purchase consideration into interest, deductible under s. 24(1)(iv). Coming to the decision in the case of Sunil Kumar Sharma, it was pointed out that in that case the payments were made as per schedule of instalments which specifically indicated the payment of interest and the quantum thereof as distinguished from the purchase consideration paid by the assessee. 3.4 In the rejoinder, the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X
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