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TMI Blog2008 (3) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court of Kerala at Ernakulam in Income Tax Reference Nos.234 of 1997 and 310 of 1999. The following two questions were referred by the Income Tax Appellate Tribunal, Cochin to the High Court at the instance of the revenue in ITR No.234 of 1997 for its opinion: "1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that the assessee is entitled to deduct the entire amount of interest as revenue expenditure under Section 37 of the Income-tax Act? 2. Whether, on the facts and in the circumstances of the case and also on an interpretation of the agreement dated 27.9.1993, the Tribunal is right in holding that the assessee would not only to forfeit the advances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Civil Appeal No.5309 of 2002 in which merits of the dispute have been challenged, it would be necessary to refer to few facts to understand the dispute which are as under: Assessee entered into an agreement with M/s. Peirce Leslie (India) Ltd. on 27.9.1983 for purchase of an extent of 466 cents of land with buildings thereon at Calicut. It was agreed that the sale deed will either be got executed in favour of the assessee or its nominees. As per agreement, if the purchase price was not paid within the specified time, assessee was liable to pay interest at the rate of 18% per annum. The buildings standing on the lands were demolished and the scrap materials were sold for Rs.5,88,001/-. This income was treated as business income. Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold as scrap material for Rs.5,88,001/-. This sum was offered for assessment as business income and assessed as such. The payment of interest of Rs.4 lacs for the delayed payment of purchase consideration has been provided in the agreement and thus, the payment of interest was a contractual obligation. It was held by the Tribunal that the payment of interest was to be viewed as an expenditure under Section 37 of the Income Tax Act, 1961 (for short 'the Act'), especially when the sale proceeds of the scrap materials from the demolished structures have been treated as business income and ultimately allowed the claim of the assessee for deduction of interest. Aggrieved against the said order, the assessee as well as revenue filed ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The High Court has erred in recording a finding to the contrary. Once the revenue has accepted the sum of Rs.5,88,001/- as business income as sale proceeds from the scrap material of the structures standing on the lands then correspondingly assessee would be entitled to claim a sum of Rs.4 lacs as revenue expenditure paid as interest on the delayed payment of the purchase consideration. For the foregoing reasons, we set aside the order passed by the High Court and restore that of the Tribunal treating the income of Rs.4 lacs as revenue expenditure. Accordingly, question No.1 is answered in favour of the assessee and against the revenue and correspondingly question No.2 is answered in favour of the assessee and against the revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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