2008 (3) TMI 14

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.... 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 but also stand exposed to civil and criminal action and in that sense allowing the payment of interest as contractual obligation? The following two questions were referred ....

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.... 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 the agreement, the assessee had to pay an interest of Rs.4 lac....

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.... 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 re....