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TMI Blog2009 (4) TMI 548X X X X Extracts X X X X X X X X Extracts X X X X ..... in regard to the aforesaid ground, are that the Ministry of Urban Development and Poverty Alleviation, Government of India, allotted a piece of land, measuring 42.6 acres at Andrews Ganj, New Delhi, to the assessee, out of which 17.6 acres of land was for construction and development of Community Centre Complex, vide allotment letter dated 1-11-1990, which is placed at pages 57 to 59 of the paper book. This letter was followed by another allotment letter dated 15-6-1993, at pages 60 to 62 of the paper book. The final allotment letter dated 19-3-1996 of Government of India, superseding the earlier allotment letters was received and placed at pages 66-69. This letter was also amended by letter dated 15-10-1996, placed at page 70 of the paper book. 2.2 The community centre was to be constructed and developed by the assessee out of its own funds as per decision contained in paragraph 3 of Minutes of the Meeting held on 7-9-1995, placed at pages 63 to 65 of the paper book, between the officials of Ministry of Urban Affairs and Employment, CPWD, L&DO and the assessee. It was allowed interest at the rate of 17 per cent per annum on the funds employed by it in the construction and develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was allowed interest at the rate of 17 per cent per annum. This income was offered for taxation. The question of handling of surplus funds, arising from disposal of various properties developed in the said community centre complex after adjusting the funds deployed by the assessee, was also considered in the same meeting held on 7-9-1995. The sale or disposal was also made by the assessee on behalf of the Government. It was decided that surplus funds belonging to the Government will be kept by the assessee in deposits and interest accruing thereon will be credited to the said surplus funds, vide para 4 of the Minutes of the meeting, which provided that the money so available with the assessee will be kept in deposit for periods which will be determined based on cash flow requirements of projects and accrual of interest on the amounts will be credited to the surplus funds. The final allotment letter dated 19-3-1996 also provided that the surplus funds, if lying idle over a period, may be invested by the assessee in short-term investment provided the returns from such investment shall be utilized for the overall implementation of the project. Therefore, the assessee was given the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yable by the assessee was mutually decided. The liability to pay interest to the Government was, therefore, a clear and certain liability. 2.8 It was also submitted that when money is utilized by one party for the purpose of business and if the money belongs to another party, then, there is normally a commercial practice to pay interest thereon. 2.9 It was also submitted that an escrow account was subsequently opened in which the principal amount and the interest payable till the opening of the account were credited so as to facilitate the payment to the Government as and when the occasion would arise. The learned counsel was requested to furnish a copy of the escrow account, which he promised to furnish. However, such account was not furnished. 2.10 The Assessing Officer had relied on the decision of Hon'ble Supreme Court in the case of Madhav Prasad Jatia v. CIT [1979] 118 ITR 200 for non-deduction of the interest. The facts of that case were that the assessee was carrying on money-lending and other businesses. She promised to make a donation of Rs. 10 lakh for setting up of an engineering college and some further sum for setting up a hospital. Initially, a sum of Rs. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funded to the members after the loan taken from Industrial Finance Corporation of India was repaid. The fund was to cease to exist thereafter. The money lying in the fund was used by the assessee-society for the purpose of its business and also for converting partly paid-up shares into fully paid-up shares. Thereafter, the Board of Directors resolved to pay interest at the rate of 6 per cent on the balance amount available in the fund to its members. This amount was claimed as deduction in computing the income under section 36(1)(iii) of the Act. The Tribunal and the High Court allowed the claim. Reversing the decision of the High Court, the Hon'ble Supreme Court mentioned that the deposits made by the members under by-law 50 did not constitute loan advanced by them to the society. This money was to be utilized for converting partly paid-up shares into fully paid-up shares and the amount left thereafter was to be used to discharge the loan taken from the Industrial Finance Corporation of India. Any amount remaining thereafter was to be refunded to the members. There was no certainty that any amount will be left after converting the shares into fully paid-up shares and discharging t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urplus was to be handled. The amount of surplus and the rate of interest were not determined and fixed. Therefore, it was held that the interest is not deductible in computing the income by relying on the decision in the case of Madhav Prasad Jatia (supra) and Bazpur Co-operative Sugar Factory Ltd. (supra). 3.1 In order to support the order of the Assessing Officer, reliance was placed on the decision of Hon'ble Delhi High Court in the case of CIT v. Motor General Finance Ltd. [2002] 254 ITR 4491 . The facts of that case are that the assessee borrowed substantial amounts on interest. It also advanced interest-free loan to its sister concern, the result of which was that interest-free advances were increased from about Rs. 1.54 crore to Rs. 2.02 crore. The Assessing Officer disallowed a sum of Rs. 10.00 lakh from the claim of interest made by the assessee. The learned CIT (Appeals) remanded the matter to the Assessing Officer to collect details and in particular to find out whether the date on which interest-free advance was made, the assessee had own funds or borrowed funds. In pursuance of this direction of the CIT (Appeals), the Assessing Officer directed the assessee to furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h an order does not bind us to decide the issue at hand on merits on the basis of that order. Therefore, the issue will have to be decided independently on the basis of the arguments made before us. The undisputed facts are that the assessee was implementing a project on behalf of the Government of India. Initially, the money was invested by the assessee for implementation of the project, on which interest was paid by the Government to the assessee at the rate of 17 per cent. As money started flowing in as sale proceeds, the investment made by the assessee was recovered and yet there was a surplus money left with it for payment to the Government of India. The assessee wrote a letter to the Government seeking clarification in the matter about the surplus money as disputes arose between the Income-tax Department and the assessee. In letter dated 7-11-2000 it was submitted that the Ministry had absolute right over the balance available with the assessee and the word "balance" meant sale proceeds and interest payable by the assessee minus expenditure incurred by the assessee along with interest chargeable during the initial period and overheads receivable by the assessee. The Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cent. Therefore, the assessee would pay interest in the year 1997-98 at the rate applicable to fixed deposits taken by State Bank of India for one year, which may vary from time to time. Therefore, the assessee wrote a letter to the Government of India on 9-3-1998, in line with the aforesaid minutes, suggesting the payment of interest at the rate of 7.5 per cent. The Ministry replied vide its letter dated 8-9-1998 to the effect that it agreed with the proposal of the assessee, but the decision was purely provisional and it will be finalized when the Government have taken a decision on the project and the interest rate. The case of the assessee is that this letter from the Ministry approving the proposal of the assessee in regard to the rate of interest, brings into existence a binding contract containing the stipulation that interest will be payable to the Government of India at the rate of 7.5 per cent. On the other hand, the case of the learned DR is that there is no dispute about the fact that the money available in surplus funds account belonged to the Government. However, the letter of the Ministry was purely provisional and final decision had to be taken by the Government o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting, a sum of Rs. 43,692 was credited to the books as sale price. At the same time, a debit was made of Rs. 24,809 towards expenditure for development to be undertaken although no expenditure was incurred in that year. The Hon'ble Court pointed out that the liability to incur expenditure on development of land has been incurred by the assessee as it formed part and parcel of the sale agreement. Therefore, the difficulty in estimating the expenditure would not convert this liability into a contingent liability. If the revenue was not satisfied with the estimate of the liability entered by the assessee in the books, it could have estimated the liability on a reasonable basis. However, the whole of the amount could not have been disallowed simply because the liability was to be discharged at a future date and its exact amount was not known. We find that the correspondence between the assessee and the Government of India does lead to fastening of the interest liability on the assessee in respect of surplus funds account. This was tentatively agreed by the Ministry also. This liability cannot be said to be unascertained liability simply because the Ministry was also to take a final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for assessment year 1999-2000 in ITA No. 140 (Delhi)/2003, dated 30-5-2008, a copy of which was placed in the paper book on pages 20 to 23. The issue is decided by the Tribunal in ITA No. 2041 (Delhi)/2002, in paragraphs 35, 36 and 37, in which it was held that interest accruing on loans obtained in foreign currency from Asian Development Bank and Japan Bank of International Cooperation is deductible in computing the income even though it has not become payable. For the sake of ready reference, these paragraphs are reproduced below :- "35. We have heard both the parties. There is no dispute that the assessee had obtained loans in foreign currency from Asian Development Bank and the Japan Bank of International Cooperation. The Assessing Officer has disallowed the claim of the assessee on the ground that the liability did not crystallize in the year under consideration. The assessee is following mercantile system of accounting. Therefore, the liability to pay interest accrued on the last day of the accounting year. The assessee has paid the amount of interest in June and August, 1998. 36. Hon'ble Supreme Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial placed on record. It is evident from assessment order that Assessing Officer had not examined the issue in the light of material filed before him. He has simply disallowed the claim of the assessee on the grounds that the relevant details were not filed by the assessee. Similar issue came for our consideration in assessment year 1996-97 in ITA No. 1040 (Delhi)/2002 in assessee's own appeal. The matter has been restored to the file of the Assessing Officer vide order dated 31-8-2007 with the directions to decide the matter on merits as per the provisions of law. Since identical issue is involved we set aside the matter to the file of Assessing Officer with the similar directions. However, he will keep in view the decision of Hon'ble jurisdictional High Court in the case of CIT v. Thirani Chemicals [2007] 290 ITR 196 and the decision of Apex Court in the case of Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802 , while deciding the issue." Following this order, the matter is restored to the file of the Assessing Officer for deciding the issue again after hearing the assessee and considering the details and also taking aforesaid decisions into account. Thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsent of the payer and the payment is enforced by law. They are imposed for public purpose without reference to any special benefit to be conferred to the payer of the tax. The ld. A.R. of the assessee submitted that provisions of section 43B are not applicable as the stamp duty is not in a nature of duty. However, he could not cite any judicial pronouncement supporting his contention. Since stamp duty is levied on certain instruments under the Indian Stamp Act, 1899, it is covered by the provisions of section 43B. Accordingly, the deduction will be available to the assessee in the year in which such payments are made. Hence, we do not find any infirmity in the order passed by the ld. CIT(A) confirming the addition." Relying on this order, this ground is dismissed. 9. Ground No. 6 for assessment year 2000-01 and ground No. 7 for assessment year 2001-02 are similar to the effect that the learned CIT (Appeals) erred in not allowing deduction under section 36(1)(viia) and section 36(1)(viii), to be computed in line with the additions made in the assessment order. It was the common ground of both the parties that this issue stands covered by the order of the Tribunal in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had written back the amount claimed in this year to the profit and loss account for assessment year 2002-03 and in view thereof an alternative plea was made before him that the expenditure may be allowed for assessment year 2002-03. In view of the aforesaid facts, the learned CIT (Appeals) concluded that the expenditure of Rs. 9,57,812 was not deductible in computation of income of this year. 10.1 Before us, these very facts were repeated and it was urged that a direction may be given to allow the expenditure in the computation of income for assessment year 2002-03. On the other hand, the learned DR agitated that there was no requirement on the part of the assessee to make the contribution to the activity. Further, no expenditure was incurred by the assessee and, therefore, the amount could not be allowed merely because a provision was made in the books of account. He also relied on the orders of the Assessing Officer and the learned CIT (Appeals) in this matter. 10.2 We have considered the facts of the case and rival submissions. From the facts narrated above, it is clear that the assessee has not been able to prove in any manner that it was required to make contribu ..... 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