M/s Premier Electrical Industries, Chandigarh V. ACIT, Chandigarh

ITA 77/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77088 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 07-04-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 28-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMARVEER SINGH
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 77/CHD/2013 ASSESSMENT YEARS : 2009-10 M/S PREMIER ELECTRICAL VS. A.C.I.T. CIRCLE 2(1) INDUSTRIES CHANDIGARH H NO. 99-GF, SEC 28-A CHANDIGARH AABFP 0329C (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VINEET KRISHAN RESPONDENT BY: SHRI A MARVEER SINGH DATE OF HEARING 7.4.2014 DATE OF PRONOUNCEMENT 30.5.2014 O R D E R PER T.R. SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 11.10.2012 OF THE LD CIT(A), CHANDIGARH. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT THE ORDER PASSED U/S 250(6) OF INCOME -TAX ACT, 1961 BY THE LD. CIT(A), CHANDIGARH IN APPEAL NO. 545/11- 12 DATED 11.10.2012 IS CONTRARY TO LAW AND FACTS OF THE CASE . 2 THAT THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) GRAVELY ERRED IN UPHOLDING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF AN AMOUNT OF RS. 50,10,055/- ON ACCOUNT OF INTEREST PAYMENT CLAIMED U/S 24(B) OF INCOME -TAX ACT, 1961. 3 THAT THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) GRAVELY ERRED IN UPHOLDING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF AN AMOUNT OF RS. 15, 84,706/-- ON ACCOUN T OF INTEREST PAID TO M/S SAROVAR HOTEL IN RESPECT OF DEDUCTION U/S 24(B) OF INCOME -TAX ACT, 1961. 4 THAT WITHOUT PREJUDICE TO THE ABOVE THE DISALLOWA NCES SUSTAINED ARE HIGHLY EXCESSIVE. 5 THAT THE LD. CIT(A) GRAVELY ERRED IN UPHOLDING CH ARGING OF INTEREST U/S 234B AND 234C OF INCOME -TAX ACT, 1961 WHICH IN ANY CASE IS EXCESSIVE. 2 3 GROUNDS NO. 1 TO 4 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED DEDUCTION U/S 24(B) OF THE INCOME -TAX ACT, 1961 AM OUNTING TO RS. 65,94,760/-. IT WAS FURTHER NOTICED THAT THE A SSESSEE HAD PAID A SUM OF RS. 50,10,055/- AS INTEREST ON CONVER SION CHARGES (CLU) TO THE ESTATE OFFICE, CHANDIGARH ADMI NISTRATION AND RS. 15,84,706/- WAS PAID TO SAROVAR HOTEL, MUMB AI. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS OFFER ED INCOME FROM HOUSE PROPERTY AND CLAIMED DEDUCTION FOR PAYME NT OF INTEREST U/S 24(B) OF THE ACT. THE ASSESSEE WAS AS KED TO EXPLAIN HOW SUCH INTEREST WAS ALLOWABLE. IN RESPON SE IT WAS STATED VIDE LETTER DATED 30.11.2011 AS UNDER: YOU WOULD FURTHER POINTED OUT THAT WHY THE INTERES T PAID TO THE ESTATE OFFICE BE NOT DISALLOWED. THE TWO OPTIONS W ERE 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 I NSTALLMENTS, ALONGWITH INTEREST. IT IS SUBMITTED THAT UN0PAID P RICE IS DEBT INCURRED BY THE ASSESSEE FOR ACQUIRING THE PROPERTY . THE ASSET PASSED INTO THE HANDS OF THE ASSESSEE IN THE FORM F OR WHICH IT CAN BE USED OTHER THAN INDUSTRIAL PURPOSES, AS SUCH IT ENHANCED THE COST OF THE PROPERTY. THE PAYMENT ON INSTALLMENT B ASIS DOES GIVE RISE TO THE RELATIONSHIP OF LENDER AND BORROWED BET WEEN THE ESTATE OFFICE AND THE ASSESSEE FIRM AND ACCORDINGLY THE IN TEREST PAID ON UNPAID PRICE IS AN ADMISSIBLE DEDUCTION U/S 24(I)(V I) OF THE INCOME -TAX ACT, 1961. YOUR KIND ATTENTION IS INVITED TO SEC 2(28A) ACCORD ING TO WHICH INTEREST PAYABLE IN ANY MANNER IN RESPECT OF ANY MO NEYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOSIT, CLAIM OR OTH ER SIMILAR RIGHT OR OBLIGATION) AND INCLUDES ANY SERVICE FEE OR OTHER C HARGE IN RESPECT OF THE MONEYS BORROWED OR DEBT INCURRED OR IN RESP ECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILIZED. ACCOR DINGLY IT IS AN ALLOWABLE EXPENDITURE. IN THIS CONNECTION YOUR KIND ATTENTION IS INVITED T O HON'BLE PUNJAB AND HARYANA HIGH COURT JUDGMENT IN CASE OF CIT VS. SUNIL KUMAR SHARMA, 122 TAXMAN 159 HAS GONE TO THE EXTENT THAT IN RESPECT OF HOUSE PROPERTY WHERE A BUYER, INSTEAD OF RAISING A LOAN FROM A THIRD PERSON, ENTERS INTO AN ARRANGEMENT WITH A SEL LER TO PAY SALE PRICE IN INSTALLMENTS ALONGWITH INTEREST DUE THEREO N, BY SUCH ARRANGEMENT SELLER BECOMES LENDER QUA UNPAID PURCHA SE PRICE AND PURCHASER BECOMES BORROWER- HELD YES WHETHER IN S UCH A CASE UNPAID PURCHASE PRICE CAN BE TREATED AS CAPITAL BOR ROWED FOR 3 ACQUIRING PROPERTY AND INTEREST PAID THEREON BE ALL OWED AS DEDUCTION U/S 24(1)(VI) HELD YES. AFTER EXAMINING THE SUBMISSIONS THE ASSESSING OFFIC ER WAS OF THE OPINION THAT THE DECISION OF HON'BLE PUNJAB AND HARYANA HIGH COURT IN CASE OF CIT VS. SUNIL KUMAR SHARMA ( SUPRA) WAS DISTINGUISHABLE ON FACTS BECAUSE IN THAT CASE THE ASSESSEE HAD CONSTRUCTED A BUILDING ON COMMERCIAL SITE PURCH ASED BY THE ASSESSEE WHEREAS IN THE PRESENT CASE THE PROPERTY H AD ALREADY BEEN PURCHASED BY THE ASSESSEE LONG AGO. THE PAYME NT OF INTEREST WAS WITH REFERENCE TO CONVERSION CHARGES W HICH COULD NOT BE CONSIDERED AS PAYMENT FOR ACQUISITION, CONST RUCTION, REPAIR, RENEWAL OR RECONSTRUCTION U/S 24(B) OF THE ACT. ACCORDINGLY THE INTEREST PAID TO THE CHANDIGARH ADM INISTRATION AMOUNTING TO RS. 50,10,055/- WAS DISALLOWED. 4 AS FAR AS CLAIM FOR DEDUCTION OF RS. 15,84,706/- U/S 24(B) ON ACCOUNT OF INTEREST PAID TO SAROVAR HOTEL IS CON CERNED, IT WAS OBSERVED THAT THIS PAYMENT HAD NO NEXUS WITH TH E INTEREST PAYMENT FOR THE PROPERTY. MOREOVER THE ASSESSEE HA D RAISED UNSECURED LOANS AND ADVANCED THE SAME TO THE PARTNE RS AND THE BALANCES IN THE ACCOUNTS OF THE PARTNERS WERE NEGATIVE, THEREFORE THIS INTEREST PAYMENT WAS ALSO DISALLOWED . 5 ON APPEAL BEFORE THE LD. CIT(A), THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE REITERATED. THE LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS REFERRED TO THE PRO VISIONS OF SECTION 24(B) AND OBSERVED THAT DEDUCTION WAS POSS IBLE IN RESPECT OF INTEREST EXPENDITURE ON THE CAPITAL BOR ROWED FOR ACQUISITION, CONSTRUCTION, REPAIR, RENEWAL OR RECON STRUCTION OF THE PROPERTY. IN THE INSTANT CASE THE ASSESSEE HAD PAID ONLY 4 FEES FOR CHANGE OF LAND USE FROM INDUSTRIAL TO C OMMERCIAL. CHANDIGARH ADMINISTRATION HAD GIVEN THE OPTION TO P AY THE ENTIRE AMOUNT OF CONVERSION FEE OR PAY A SUM BY WAY OF INSTALLMENTS. ACCORDING TO HIM THE INTEREST PAID F OR CONVERSION CHARGES WAS NOT COVERED BY SEC 24(B) AND HE UPHELD THE DISALLOWANCE OF RS. 50,10,055/-. IN RESPECT OF INT EREST 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 RS. 15,84,706/-. 6 BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ASSESSEE WAS ALLOTTED AN INDUSTRIAL SITE B Y THE THEN GOVT UNDER THE CAPITAL OF PUNJAB (DEVELOPMENT AND R EGULATION) ACT, 1952 ON 2.5.1959. THE PROPERTY WAS ALLOTTED F OR THE PURPOSE OF MANUFACTURING ELECTRICAL APPLIANCES. S INCE THE PROPERTY WAS ALLOTTED FOR A SPECIFIC INDUSTRY AND A S PER CAPITAL OF PUNJAB (DEVELOPMENT AND REGULATION) ACT, 1952 NO COMMERCIAL ACTIVITY COULD BE CARRIED OUT IN AN INDU STRIAL AREA. SINCE THE INDUSTRY IN THE CITY OF CHANDIGARH WERE N O WORKING PROPERLY THE CHANDIGARH ADMINISTRATION CAME OUT WIT H A SCHEME FOR CONVERSION OF INDUSTRIAL LAND INTO COMME RCIAL ACTIVITY UNDER THE CAPTION CHANDIGARH CONVERSION O F LAND USE OF INDUSTRIAL SITE INTO COMMERCIAL ACTIVITY IN INDU STRIAL AREA, PHASE I AND PHASE II, CHANDIGARH SCHEME 2005. TH E ASSESSEE APPLIED FOR THIS AND ULTIMATELY ESTATE OFF ICE ISSUED NO OBJECTION. THE ASSESSEE DID NOT HAVE REQUISITE FUNDS AND THEREFORE OPTED FOR INSTALLMENTS SCHEME. ON SUCH I NSTALLMENTS AN INTEREST AMOUNTING TO RS. 50,10,055/- WAS TO BE PAID 5 ANNUALLY. IN THIS REGARD HE REFERRED TO VARIOUS DO CUMENTS INCLUDING NO OBJECTION CERTIFICATE ISSUED BY THE CH ANDIGARH HOUSING BOARD WHICH SPECIFIES THE AMOUNT OF INSTALL MENTS. IT WAS POINTED OUT THAT SINCE CHANDIGARH ADMINISTRATIO N WAS CHARGING REASONABLE INTEREST @ 8.25% AND THEREFORE THERE WAS NO LOGIC IN BORROWING THE MONEY ON HIGHER RATE FROM OUTSIDE. ADVERTING TO THE ISSUE OF DEDUCTION U/S 24(B) THE L D. COUNSEL FOR THE ASSESSEE EMPHASIZED THAT THIS SECTION HAS A LSO USED THE EXPRESSION RENEWED. HE THEN REFERRED TO THE DEFINITION OF PROPERTY AND RENEWAL IN THE OXFORD DICTIONARY B LACKS LAW DICTIONARY AND POINTED OUT THAT THE CONVERSION OF I NDUSTRIAL PROPERTY INTO COMMERCIAL PROPERTY WOULD DEFINITELY COME UNDER THE EXPRESSION RENEWAL OF PROPERTY. HE ALSO REFE RRED TO VARIOUS DEFINITIONS OF EXPRESSION ACQUIRED ACQUI SITION RENEWAL AND PROPERTY IN THE LAW LEXICON AS WELL AS BLACKS LAW DICTIONARY. HE CONTENDED THAT THOUGH THE ASSES SEE HAS ALREADY ACQUIRED THIS PROPERTY BUT THE POSSESSION O F THIS PROPERTY WAS FOR A LIMITED PURPOSE AND UTILIZATION OF PROPERTY HAS BEEN EXTENDED AFTER CONVERSION OF THE SAME INTO COMMERCIAL PROPERTY ALSO. HE CONTENDED THAT SEC 24 (B) CANNOT BE RESTRICTED ONLY FOR ACQUISITION OF THE PROPERTY AND SOME MEANING HAS TO BE GIVEN FOR RENEWAL OF PROPERTY ALS O. HE ALSO REFERRED TO THE DECISION OF HON'BLE PUNJAB AND HARY ANA HIGH COURT IN CASE OF CIT VS. SUNIL KUMAR SHARMA (SUPRA) WHEREIN IT WAS HELD THAT INTEREST PAID ON UNPAID CONSIDERATION IS ALLOWABLE DEDUCTION U/S 24(I)(VI). SIMILAR VIEW WAS TAKEN BY THE CHANDIGARH BENCH IN CASE OF MASTER SUKHWANT SINGH V S. ITO, 61 TTJ (CHD) 643 (COPY OF DECISION FILED) WHICH HAS LATER BEEN CONFIRMED BY HON'BLE PUNJAB AND HARYANA HIGH COURT IN CASE 6 OF CIT VS. MASTER SUKHWANT SINGH, 196 CTR 122 (PH) : 155 TAXMAN 153 (PH). 7 AS FAR AS INTEREST PAID TO SAROVAR HOTEL IS CONCE RNED, IT WAS POINTED OUT THAT THE ASSESSEE HAD TAKEN TWO TYP ES OF SECURITIES FROM M/S SAROVAR HOTEL PVT LTD. IN THIS REGARD HE REFERRED TO THE FINANCIAL ASSISTANCE AGREEMENT ENTE RED INTO BY THE ASSESSEE WITH SAROVAR HOTEL ON 12.3.2007 WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGE 43 TO 51. A SUM O F RS. 1,28,52,000/- WAS INTEREST FREE SECURITY. ANOTHER A MOUNT OF RS. 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 ADMINI STRATION. HE FURTHER POINTED OUT THAT AS PER LEASE DEED DATED 12.3.2007 THE ASSESSEE WAS TO RECEIVE RENTAL INCOME OF RS. 1, 28,52,000 EVERY YEAR SUBJECT TO INCREASE AFTER EVERY THREE YE ARS. HOWEVER, AS PER CLAUSE2.4 RENT WAS TO BE RECEIVED IN ADVANCE AT THE END OF PRESENT VALUE AFTER DISCOUNTING THE S AME ON THE PREVALENT INTEREST RATE OF STATE BANK OF INDIA FOR ONE YEAR FIXED DEPOSIT, THEREFORE SOME ELEMENT OF INTEREST WAS INV OLVED IN RESPECT OF ANNUAL RENT. THIS AMOUNT WAS APPROXIMAT ELY RS. 5 LAKHS. HE SUBMITTED THAT THIS AMOUNT WAS USED FOR PAYMENT OF CONVERSION CHARGES AND THEREFORE THIS INTEREST SHOU LD BE ALLOWED BUT IN ANY CASE THE ASSESSEE HAS CLAIMED ON LY A SUM OF RS. 60,18,199 AGAINST RENTAL INCOME WHICH BECOME S CLEAR FROM THE COMPUTATION OF INCOME (COPY OF WHICH IS PL ACED AT PAGE 9 TO 11 OF THE PAPER BOOK). THEREFORE DISALLO WANCE OF RS. 65,94,761/- WAS MADE THEN THIS WOULD AMOUNT TO DOUB LE DISALLOWANCE TO THE EXTENT OF APPROXIMATELY RS. 5 L AKHS. 7 8 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A) AND EMPHASIZE D THAT IMPROVEMENT IN TITLE OF THE PROPERTY WOULD NOT BE C OVERED BY VARIOUS CLAUSES PROVIDED U/S 24(B) AND THEREFORE TH IS INTEREST CANNOT BE ALLOWED. 9 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT THE ASSESSEE HAS FILED RETURN DECLARING T OTAL INCOME OF RS. 31,87,110 WHICH INCLUDES RENTAL INCOME OF RS. 3 2,13,220. THE RENTAL INCOME HAS BEEN SHOWN AT RS. 1,32,12,118 FROM THIS MUNICIPAL TAX AMOUNTING TO RS. 24376 HAS BEEN REDUC ED AND ANNUAL VALUE HAS BEEN DECLARED AT RS. 1.31.87.742. THEREAFTER 30% DEDUCTION U/S 24(A) HAS BEEN REDUCED AND FURTHE R DEDUCTION U/S 24(B) IN RESPECT OF INTEREST ON BORR OWINGS AMOUNTING TO RS. 60,18,199 HAS BEEN MADE. THE ASSE SSEE WAS ALLOTTED AN INDUSTRIAL SHED FOR ELECTRICAL INDUSTRY SOMEWHERE IN 1959. SINCE THE INDUSTRY WAS NOT RUNNING SMOOTHLY AND THEREFORE CHANDIGARH ADMINISTRATION ANNOUNCED A SCH EME FOR CONVERSION OF INDUSTRIAL SHED INTO COMMERCIAL PROPE RTY. THE ASSESSEE HAS ALSO APPLIED FOR THE SAME AND THE CHAN DIGARH HOUSING BOARD WHICH SEEMS TO BE A OPERATING AGENT F OR THIS SCHEME, ISSUED A NOC FOR CONVERSION OF ASSESSEES P ROPERTY. SINCE THE ASSESSEE OPTED TO PAY THE CONVERSION CHAR GES IN INSTALLMENTS ASSESSEE HAD TO PAY INTEREST ALSO ON S UCH INSTALLMENTS. THE INSTALLMENTS HAVE BEEN WORKED OU T AS UNDER VIDE PARA 4 OF LETTER DATED 26.3.2007 (SEE PAGE 15 OF PAPER BOOK). IN VIEW OF YOUR OPTION TO MAKE PAYMENT OF THE FEE IN TEN ANNUAL INSTALLMENTS, A SUM OF RS.73,28,281 IS PAYMENT ALON G WITH APPLICATION AND BALANCE AMOUNT OF RS. 1,06,68,014 I S PAYABLE IN NINE ANNUAL INSTALLMENTS WITH INTEREST @ 8.25% P.A. COMPOUNDED 8 ANNUALLY. THE SCHEDULE OF PAYMENT OF ANNUAL EQUATE D INSTALLMENT6 IS AS UNDER: INSTALLMENT NO AMOUNT (IN RS.) DUE DATE 1ST 73,28,281 ALONGWITH APPLICATION 2ND 1,06,68,014 14.3.2008 3RD 1,06,68.014 14.3.2009 4TH 1,06,68.014 14.3.2010 5TH 1,06,68.014 14.3.2011 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 RS. 50,10,055. THIS AMOUNT IS NOT DISPUTED. NOW THE Q UESTION 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 H OUSE PROPERTY SHALL BE COMPUTED AFTER MAKING THE FOLLOW ING DEDUCTIONS, NAMELY :- (A)---------------------- (B) WHERE THE PROPERTY HAS BEEN ACQUIRED, CONSTRUC TED, REPAIRED, RENEWED OR RECONSTRUCTED WITH BORROWED CAPITAL, THE AMOUNT OF ANY INTEREST PAYABLE ON SUCH CAPITAL. PLAIN READING OF THE ABOVE PROVISION WOULD SHOW THA T INTEREST CAN BE DEDUCTED IF SAME HAS BEEN PAID FOR ACQUISITI ON OR CONSTRUCTION OR REPAIR OF THE PROPERTY. ONE MORE E XPRESSION HAS BEEN USED I.E. RENEWED. IN OUR OPINION, RENE WED IS NOT RELATED TO THE ACQUISITION, CONSTRUCTION OR REPAIR AND SOME MEANING HAS TO BE ASSIGNED TO THIS EXPRESSION ALSO. THE LD. COUNSEL FOR THE ASSESSEE HAS REFERRED TO DEFINITION OF THE EXPRESSION ACQUIRED ACQUISITION RENEWAL FROM THE BLACKS LAW DICTIONARY WHICH ARE AS UNDER: ACQUIRE. VB. TO GAIN POSSESSION OR CONTROL OF TO G ET OR OBTAIN 9 ACQUISITION 1. THE GAINING OF POSSESSION OR CONTROL OVER SOMETHING, ACQUISITION OF THE TARGET COMPANYS ASSE T 2. SOMETHING ACQUIRED , A VALUABLE ACQUISITION RENEWAL THE ACT OF RESTORING OR REESTABLISHING. 2 . THE RECREATION OF A LEGAL RELATIONSHIP OR THE REPLACEMENT OF AN OL D CONTRACT WITH A NEW CONTRACT, AS OPPOSED TO THE MERE EXTENSION OF A PREVIOUS RELATIONSHIP OR CONTRACT. THE MEANING GIVEN AT SL NO. 2 FOR RENEWAL WOULD DEF INITELY TAKE IN ITS STRIDE THE CONVERSION CHARGES ALSO BECAUSE T HE DICTIONARY CLEARLY STATES THAT RECREATION OF LEGAL RELATIONSHI P OR REPLACEMENT OF OLD CONTRACT WITH A NEW CONTRACT IS COVERED BY THE DEFINITION OF RENEWAL. THIS MEANS IN THE CASE OF THE ASSESSEE WHEN THE ORIGINAL CONTRACT FOR THE PROPERT Y WAS FOR INDUSTRIAL SHED AND AFTER CHARGING THE CONVERSION C HARGES THE CONTRACT WOULD BE FOR COMMERCIAL PROPERTY. IN OUR O PINION, THIS WOULD BE DEFINITELY COVERED BY THE EXPRESSION RENE WAL. IN PRACTICAL TERMS THE ASSESSEE COULD NOT HAVE USED TH E PROPERTY EXCEPT FOR RUNNING THE INDUSTRY IN ELECTRICAL ITEMS BUT NOW THE ASSESSEE HAS BEEN ALLOWED TO USE THE SAME IN COMMER CIAL TERMS AND I.E. WHY THE ASSESSEE HAS BEEN ABLE TO EX PLOIT THE SAME BY GIVING COMMERCIAL SITE ON RENT FOR THE PURP OSE OF RUNNING A HOTEL. THIS IS BECAUSE OF THE RENEWAL MA DE BY THE CHANDIGARH ADMINISTRATION BY CHANGING THE USAGE OF THE PROPERTY. 10 NOW AS FAR AS THE CONTENTION THAT WHERE THE INTE REST IS PAID TO THE CHANDIGARH ADMINISTRATION FOR ACQUISITI ON OF PROPERTY IS CONCERNED, THE SAME IS NO MORE RES-INTE GRA BECAUSE HON'BLE PUNJAB AND HARYANA HIGH COURT HAS CLEARLY HELD IN CASE OF CIT VS. SUNIL KUMAR SHARMA (SUPRA). IN THAT CASE IT WAS HELD AS UNDER: 10 IT IS EVIDENT THAT IF A PROPERTY IS ACQUIRED BY RA ISING A LOAN, INTEREST PAID ON SUCH BORROWING IS AN ADMISSIBLE DE DUCTION. IF THAT IS SO, IT IS NOT UNDERSTOOD AS TO WHAT DIFFERENCE C AN IT MAKE IF A BUYER INSTEAD OF RAISING A LOAN FROM A THIRD PERSON ENTERS INTO AN ARRANGEMENT WITH A SELLER TO PAY THE SALE PRICE IN INSTALLMENTS ALONG WITH INTEREST DUE THEREON. THE MOMENT SUCH A N ARRANGEMENT IS ENTERED INTO THE SELLER BECOMES THE LENDER QUA T HE UNPAID PURCHASE PRICE AND THE PURCHASER BECOMES THE BORROW ER. 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 PAY MENT. SEC 24 (1)(VI_) PROVIDING DEDUCTION OF INTEREST ON BORROWE D CAPITAL IS AN INCENTIVE TO PROMOTE CONSTRUCTION OF BUILDING. IT CANNOT BE INTERPRETED NARROWLY SO AS TO DEFEAT THE VERY PURPO SE 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 H OLDING 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 V S. R.P. GOENKA & J.P. GOENKA (1999) 152 CTR 156 (CALCULATION ): 233 ITR 123 (CALCULATION ): TC S 40 3579 RELIED ON, BOMBAY STEA M 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 BOMBAY LTD VS. CIT, 14 ITR 6 38 (BOM): TC 17R 1506 DISTINGUISHED. SIMILAR VIEW HAS BEEN TAKEN BY HON'BLE HIGH COURT IN CASE OF CIT VS. MASTER SUKHWANT SINGH (SUPRA). 11 THEREFORE IN VIEW OF ABOVE LEGAL SITUATION, IN O UR OPINION, THE ASSESSEE IS DEFINITELY ENTITLED TO CLAIM THE DE DUCTION FOR INTEREST PAID TO CHANDIGARH ADMINISTRATION AMOUNTIN G TO RS. 50,10,055 AND ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW D EDUCTION OF THIS INTEREST. 12 AS FAR ADDITION ON ACCOUNT OF INTEREST PAID TO O THER PARTIES AMOUNTING TO RS. 15,84,076 IS CONCERNED, FIRST OF A LL IT HAS TO BE NOTICED THAT THIS CONSIST OF TWO PARTS. FIRST P ART IS BASICALLY THE INTEREST REDUCED BY THE LESSEE I.E. SAROVAR HOT EL PVT LTD. THIS BECOMES CLEAR FROM LEASE DEED. CLAUSE 2.4 READ S AS UNDER: SUBJECT TO CLAUSE 2.5 BELOW, FOR THE FIRST 10 YEAR S FROM THE COMMENCEMENT OF THIS LEASE, THE LEASE RENTAL SHALL BE PAID ANNUALLY IN ADVANCE AT NET PRESENT VALUE (NPV). TH IS NPV SHALL BE ARRIVED BY DISCOUNTING THE ANNUAL LEASE RENTAL AMOU NT BY THE PREVALENT INTEREST RATE OF STATE BANK OF INDIA FOR ONE YEAR FIXED DEPOSIT RECEIPT APPLICABLE AT THE TIME PAYMENT IS M ADE AND 11 RELEVANT TO THE AMOUNT OF PAYMENT AND FOR THE REMAI NING PERIOD OF 40 YEARS THE LEASE RENTAL SHALL BE PAID MONTHLY IN ADVANCE BY THE 7 TH OF EVERY SCHEDULED MONTH. THE ADVANCE ANNUAL PAYM ENT OF THE LEASE RENTAL AT NPV FOR THE FIRST TEN YEARS SHALL B E MADE 15 DAYS PRIOR TO THE DUE DATE OF PAYMENT OF THE INSTALLMENT BY THE LESSOR FOR CONVERSION OF LAND USE (CLU) IN TERMS OF CLAUSE 4.1 BELOW. THE ABOVE CLEARLY SHOW THAT PAYMENT OF RENT WAS GIV EN IN ADVANCE TO THE ASSESSEE FOR FURTHER PAYMENT OF CONV ERSION CHARGES OF LAND USE. THE ASSESSEE COULD HAVE REDUC ED THIS AMOUNT FROM GROSS RENT DIFFERENCE BUT THE SAME HAS NOT BEEN DONE, THEREFORE THE ASSESSEE SHOULD BE ENTITLED TO REDUCE THIS DISCOUNT OR INTEREST WHICH IS AGAIN DIRECTLY USED F OR THE PURPOSE OF PAYMENT OF CONVERSION CHARGES. 13 NO DOUBT THE ASSESSEE HAS RAISED FURTHER FUNDS, THEREFORE SAROVAR HOTEL PVT LTD BY WAY OF INTEREST BEARING S ECURITIES BUT THE SAME HAS NOT BEEN SHOWN TO BE PAID FOR PAYMENT OF CONVERSION CHARGES. IN FACT WE HAD ASKED THE LD. C OUNSEL TO FILE THE COPIES OF PARTNERS CAPITAL ACCOUNT BECAUS E THE ASSESSING OFFICER HAS GIVEN A FINDING THAT THERE WA S A NEGATIVE BALANCE IN THE PARTNERS CAPITAL ACCOUNT. THESE WE RE FILED AND PERUSAL OF THE SAME CLEARLY SHOW THAT THERE IS NEGA TIVE BALANCE IN THE PARTNERS CAPITAL ACCOUNT. EVEN THE BALANCE SHEET CLEARLY SHOW THAT PARTNERS CAPITAL ACCOUNT HAD A N EGATIVE BALANCE. THEREFORE CLEARLY THE FURTHER BORROWING HA VE GONE TOWARDS THE PAYMENT TO THE PARTNERS AND SAME ARE NO T RELATED TO THE CONVERSION CHARGES. TO THIS EXTENT THE ASSES SING 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 ON LY RS. 60,18,199 AND THE INCOME HAS BEEN COMPUTED BY THE A SSESSING 12 OFFICER ON THE BASIS OF COMPUTATION FILED BY THE A SSESSEE. HOWEVER, WE AGAIN CLARIFY THAT THIS DISALLOWANCE H AS TO BE RESTRICTED AT RS. 10,08,144. THIS HAS BEEN WORKED OUT AS UNDER: INTEREST CLAIMED IN THE COMPUTATION OF INCOME RS. 60,18,199 LESS: INTEREST PAID TO THE CHANDIGARH ADMINISTRATION FOR WHICH SEPARATE DEDUCTION HAS BEEN ALLOWED RS. 50,10,055 BALANCE WHICH HAS TO BE DISALLOWED RS. 10,08,00 0 14 IN VIEW OF THE ABOVE WE SET ASIDE THE ORDER OF T HE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW DE DUCTION OF INTEREST PAID TO CHANDIGARH ADMINISTRATION AMOUNTIN G TO RS. 50,10,055/-. FURTHER HE SHOULD DISALLOW OF A SUM O F RS. 10,08,000/-ON ACCOUNT OF INTEREST PAID TO OTHERS BE CAUSE THERE IS NO NEXUS BETWEEN BORROWINGS AND CONVERSION CHARG ES AND THE AMOUNT HAS BEEN PAID TO THE PARTNERS AND PARTNE RS CAPITAL ACCOUNT SHOW NEGATIVE BALANCE. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.5.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30.5.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 13