TMI Blog2014 (5) TMI 1129X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to claim the deduction for interest paid to Chandigarh Administration and accordingly we set aside the order of the Ld. CIT(A) and direct the Assessing officer to allow deduction of this interest. As far addition on account of interest paid to other parties No doubt the assessee has raised further funds, therefore Sarovar Hotel Pvt. Ltd by way of interest bearing securities but the same has not been shown to be paid for payment of conversion charges. In fact we had asked the Ld. Counsel to file the copies of partner's capital account because the Assessing officer has given a finding that there was a negative balance in the partner's capital account. These were filed and perusal of the same clearly show that there is negative balance in the partner's capital account. Even the balance sheet clearly show that partner's capital account had a negative balance. Therefore clearly the further borrowing have gone towards the payment to the partners and same are not related to the conversion charges. To this extent the Assessing officer is right that the disallowance has to be maintained. We may clarify that this contention is quite right because in the computation the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not disallowed. The two options were available to the assessee either to pay the entire amount to the Estate Office or the same may be payable on the basis of yearly installments, alongwith interest. It is submitted that un0paid price is debt incurred by the assessee for acquiring the property. The asset passed into the hands of the assessee in the form for which it can be used other than industrial purposes, as such it enhanced the cost of the property. The payment on installment basis does give rise to the relationship of lender and borrowed between the Estate Office and the assessee firm and accordingly the interest paid on unpaid price is an admissible deduction u/s 24(i)(vi) of the Income-tax Act, 1961. Your kind attention is invited to Sec 2(28A) according to which interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. Accordingly it is an allowable expenditure. In this connection your kind attention is invited to Hon&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id for conversion charges was not covered by Sec 24(b) and he upheld the disallowance of ₹ 50,10,055/-. In respect of interest paid to Sarovar Hotel he confirmed the finding of Assessing officer because same had no nexus with the interest payment for the property and accordingly confirmed the disallowance of the interest of ₹ 15,84,706/-. 6 Before us. the Ld. Counsel for the assessee submitted that the assessee was allotted an industrial site by the then Govt. under the Capital of Punjab (Development and Regulation) Act, 1952 on 2.5.1959. The property was allotted for the purpose of manufacturing Electrical Appliances. Since the property was allotted for a specific industry and as per Capital of Punjab (Development and Regulation) Act, 1952 no commercial activity could be carried out in an industrial area. Since the industry in the city of Chandigarh were no working properly the Chandigarh Administration came out with a scheme for conversion of industrial land into commercial activity under the caption Chandigarh conversion of land use of industrial site into commercial activity in Industrial Area, Phase I and Phase II, Chandigarh Scheme - 2005 . The assessee applie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 43 to 51. A sum of ₹ 1,28,52,000/- was interest free security. Another amount of ₹ 1,28,52,000/- was taken as interest bearing advance @ 9% interest. This amount was taken for the purpose of making payment for conversion charges to Chandigarh Administration. He further pointed out that as per lease deed dated 12.3.2007 the assessee was to receive rental income of ₹ 1,28,52,000 every year subject to increase after every three years. However, as per clause2.4 rent was to be received in advance at the end of present value after discounting the same on the prevalent interest rate of State Bank of India for one year fixed deposit, therefore some element of interest was involved in respect of annual rent. This amount was approximately ₹ 5 lakhs. He submitted that this amount was used for payment of conversion charges and therefore this interest should be allowed but in any case the assessee has claimed only a sum of ₹ 60,18,199 against rental income which becomes clear from the computation of income (copy of which is placed at page 9 to 11 of the paper book). Therefore disallowance of ₹ 65,94,761/- was made then this would amount to double disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6th 1,06,68.014 14.3.2012 7th 1,06,68.014 14.3.2013 8th 1,06,68.014 14.3.2014 9th 1,06,68.014 14.3.2015 10th 1,06,68.014 14.3.2016 The interest on the above works out for the year at ₹ 50,10,055. This amount is not disputed. Now the question is whether the interest paid against the installments of such conversion charges would be covered by Sec 24(b) or not? Section 24(b) reads as under: 24 Income chargeable under the head Income from house property shall be computed after making the following deductions, namely :- (a)---------------------- (b) where the property has been acquired , constructed , repaired , renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital . Plain reading of the above provision would show that interest can be deducted if same has been paid for acquisition or construction or repair of the property. One more expression has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e price in installments along with interest due thereon. 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 installments carry interest from the date of sale to the date of sale to the date of payment. Sec 24 (1)(vi) providing deduction of interest on borrowed capital is an incentive to promote construction of building. It cannot be interpreted narrowly so as to defeat the very purpose for which it is enacted. Thus, the unpaid purchase price has to be treated as a borrowed capital within the meaning of Sec 24(1)(vi). Therefore the Ld. CIT(A) and the Tribunal were justified in holding that the interest portion of the purchase price included in the installments was allowable as deduction u/s 24(1)(vi). There is thus no infirmity in the view taken by the Tribunal - CIT Vs. R.P. Goenka J.P. Goenka (1999) 152 CTR 156 (Calculation): 233 ITR 123 (Calculation): TC S 40 3579 relied on, Bombay Steam Bavugatuib Co. (P) Ltd. Vs. CIT, 56 ITR 52 (S.C): TC 16 R 881, CIT Vs. Four Fields (P) Ltd, 144 CTR 676 (PH), 2312 ITR 262 (PH): TC s 40, 3577 AND Metro Theatre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital account. These were filed and perusal of the same clearly show that there is negative balance in the partner's capital account. Even the balance sheet clearly show that partner's capital account had a negative balance. Therefore clearly the further borrowing have gone towards the payment to the partners and same are not related to the conversion charges. To this extent the Assessing officer is right that the disallowance has to be maintained. We may clarify that this contention is quite right because in the computation the assessee has claimed interest of only ₹ 60,18,199 and the income has been computed by the Assessing officer on the basis of computation filed by the assessee. However, we again clarify that this disallowance has to be restricted at ₹ 10,08,144. This has been worked out as under: Interest claimed in the computation pf income ₹ 60,18,199 Less: Interest paid to the Chandigarh Administration for which separate deduction has been allowed ₹ 50,10,055 Balance which has to be disallowed ₹ 10,08,000 14. In view of the above we set aside the order of the Ld. CIT(A) and direct the Assessing officer to allow deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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