TMI Blog1981 (12) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... March, 1968. On the 2nd of June, 1967, the assessee entered into an agreement with M/s. Ashoka Marketing Ltd. for the sale of about 29 acres of lands at Ghusury for a consideration of Rs. 45 lakhs. M/s. Ashoka Marketing Ltd. paid Rs. 40 lakhs to the assessee for the purchase of the aforesaid land by way of part payment. The aforesaid land had been pledged with the Govt. of Uttar Pradesh against a loan granted by the Uttar Pradesh Govt. for the Soda Ash-cum-Ammonium Chloride factory of the assessee at Varanasi. In the aforesaid agreement, the assessee had undertaken to get the release of the land from the Govt. of Uttar Pradesh by the 15th of August, 1967. Farther, it was agreed between the parties that the assessee would be liable to pay by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 representing part payment of Rs. 40 lakhs and liquidated damages as per cl. 5 of the aforesaid agreement respectively. As regards the balance of Rs. 30 lakhs the assessee requested M/s. Ashoka Marketing Ltd. that it should be allowed to pay the same on instalment basis, viz., Rs. 3 lakhs by 10th December, 1967, Rs. 12 lakhs by 15th December, 1967, and Rs. 15 lakhs by 31st January, 1968. The assessee further agreed in the said letter to pay interest on the aforesaid loan. Under these circumstances, the assessee paid Rs. 2,95,125, Rs. 1 lakh by way of liquidated damages and Rs. 1,85,125 by way of interest, to M/s. Ashoka Marketing Ltd. and claimed the same as deductible items. The ITO disallowed the claim holding that the transaction was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id was not a business expenditure and the claim for deduction was rightly rejected. So far as the claim for interest deduction, section 36(1)(iii) provides for an allowance for the amount of interest paid in respect of capital borrowed for the purpose of business or profession. It is not for every item of interest which an assessee pays for which deduction is admissible. The payment of interest should have a nexus with the borrowals made for the purpose of business., In the instant case, the payment of Rs. 1,83,123 was not in respect of moneys borrowed for the purpose of business; nor the payment in question was an expenditure incurred for the purpose of carrying on the business. It, was only compensation for the delay and it was not allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of the consideration by M/s. Ashoka Marketing Ltd. for sale of land and the assessee had utilised this sum of Rs. 40 lakhs in its business. If any amount so obtained for whatever purpose was actually utilised in the business of the company and if any interest or incidental payment had to be made for securing the user of the money in the business of the company then such an agreement has to be considered as for the purpose of facilitating the running of the business by a retention of the money in the business and thereby incidental to the purpose of carrying on the business. But the whole question will depend on whether this sum of Rs. 40 lakhs, which was retained and in respect of which delayed repayment was secured by payment of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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