TMI Blog1944 (11) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... has now been built upon the land and which is used partly as a cinema in the occupation of the appellant and partly let out to others for rent, so that the total sum is made up of two sums of ₹ 1,361 in respect of the portion let out which is assessable to tax under Section 9 under the heading Income from property and ₹ 8,464 in respect of the cinema which is assessable under Section 10 under the heading Profits and gains from business, profession or vocation. Now before turning to the two sections and permissible deductions which may be made thereunder it is necessary to say something about the building agreement which is dated 24th June, 1937. It is between the Governor-General of India in Council of the one part and the appellant of the other part. It first of all recites that where the licensee (i.e., the appellant) has offered to purchase from the grantor (the GovernorGeneral) a lease for 999 years of the piece of land described in the first Schedule hereto for the sum of ₹ 3,81,799 on the terms and conditions hereinafter contained . Then there is a recital with regard to a deposit and a further recital that the appellant had agreed to pay the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e grantor has certified that all buildings have been erected in accordance with the terms hereof and provided that the licensee shall have paid all sums payable under these presents and shall have observed all the stipulations and conditions hereinafter contained the grantor will grant and the licensee or its approved nominee (if any) will accept a lease....... of the said land and its building erected thereon for the term of 999 years from the date hereof at the yearly rent of rupee one (if demanded)................ The agreement contains a number of other provisions such as are usually found in such agreements. Schedule II contains the building rules and finally in Schedule III the form of lease, which was ultimately to be granted when the lessee had performed the conditions which he had covenanted to observe and perform, is set out. That being the agreement to which the appellant is a party and under which he holds the land and building, a part of which is let out, it is now necessary to look at the exemptions or deductions to the two relevant sections of the Income-tax Act. Section 9 is the section which deals with that head of income called Income from property, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon by Mr. Coltman. The first is contained in sub-section (2), clause (iii), which reads as follows:- In respect of capital borrowed for the purposes of the business, profession or vocation, the amount of the interest paid (is exempted). Dealing with this question the Appellate Tribunal in its judgment has stated:- The analogy of this transaction to a borrowing pure and simple may sound plausible but in interpreting a taxing statute one cannot go merely on analogies when the language of the relevant enactment bears a plain and unambiguous meaning. What Section 10(2)(iii) speaks of is interest on capital borrowed for the purpose of business. A mere purchase of capital asset on a long term credit with a stipulation for the payment of interest on the reduced balance does not, in our opinion, amount to the borrowing of capital within the meaning of Section 10(2)(iii). I agree with the passage quoted above and the short answer to Mr. Coltman's argument is that when the building agreement is analysed it is found that no capital is borrowed by it. The other head is under sub-section (2)(xii) and the allowance made by it is this: Any expenditure (not being i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the amount of interest was payable on the capital by the use of which the property has been acquired. ₹ 8,464 are allocated in respect of his business income while ₹ 1,361 are allocated in respect of his property income out of this interest payment. I shall first consider the claim to exemption under Section 10(2)(iii). Mr. Coltman claimed that the transaction amounted to payment of interest on the capital borrowed for the purposes of business. It was urged that the Court need not look only at the words used in the agreement. He relied on Secretary of State v. Sir Andrew Scoble [1903] A.C. 299 in support of the contention that the Court should look at the real nature of the transaction. That proposition is not disputed. A scrutiny of the agreement shows that till the lease was obtained the assessee is only a licensee. He has agreed to purchase this property on payment of a sum of ₹ 3,81,796. He is given some facility in payment of the same by instalments as provided in clause 2. It is recognized that the obligation is to pay the whole amount and therefore for the facility granted for deferred payments interest has to be paid by the assessee in respect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses of business. If the interest was not paid the result would be not necessarily the stoppage of the business of showing cinema films, but the assessee will not acquire the lease of this property. It is therefore clear that this new ground urged by Mr. Coltman does not help the assessee. The ground for exemption claimed under Section 9 can be sustained only if the assessee shows that the property is subject to a capital charge and the interest is paid on such capital charge. This argument is based on the contention firstly that on a true construction of clause 2 of the agreement, because the grantor has a right to resort to remedies to recover unpaid instalments after notice of demand in the same manner as if the same were an arrear of land revenue under the Bombay City Land Revenue Act, the instalments are a charge on the land in question, and interest is paid in respect of the said charge. In my opinion this whole contention is founded on an assumption which does not exist. The right of the grantor to resort to remedies under Act II of 1876 arises only on default of payment of any instalment. On the facts on record it is common ground that there has occurred no default in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the terms of the lease only provide for payment of ₹ 1 per year, if demanded. The form of the lease annexed to the agreement does not provide for payment of the instalments for the years mentioned in the agreement between the parties. It seems that the right to obtain the lease arises only on payment of the full amount of the premium and not on payment of certain instalments only. The agreement read as a whole does not show that there has ever been any intention of passing of ownership of the leasehold to the assessee till the whole premium is paid. It seems therefore clear that as there is no question of passing of ownership till all the instalments are paid the question of creation of a charge under the Transfer of Property Act does not arise. As no charge is thus created, either under the Land Revenue Code or the Transfer of Property Act, the interest paid cannot be considered as paid in respect of the charge subsisting on the property. On the same reasoning the interest cannot be considered as paid in respect of the property acquired under the last sentence of Section 9(1)(iv) of the Act. The property is not acquired till all the instalments and all interest due are p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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