COMMISSIONER OF INCOME TAX Vs. ROHTAS INDUSTRIES LTD

JUDGEMENT

(1.) This is a reference under Section 61(1) of the Income-tax Act at the instance of the revenue in relation to the assessment year 1950-51, the corresponding accounting year being from the 1st of November, 1948 to 31st of October, 1949.

(2.) For the assessee company a piece of land was acquired under the Land Acquisition Act and the compensation was determined therefor, which was paid by the assessee. Since possession was taken of that land before the total compensation money, as finally determined under the Act, was paid, a sum of Rs. 22,438 was paid by the assessee as interest as required under Section 34 of the Land Acquisition Act. The assessee claimed, that payment as an expenditure to be deducted from his total income under Section 10 of the Income-tax Act. He claimed the deduction particularly under Sub-clause (iii) of Clause (2) of Section 10, which was disallowed by the Income-tax Officer on a finding that it was not paid on any capital borrowed. The Appellate Assistant Commissioner took the same view. When the matter came before the Tribunal at the instance of the assessee, the deduction was allowed. The Tribunal took the view that the payment of interest under Section 34 of the Land Acquisition Act was not an additional purchase price of the land acquired, and observed:

(3.) Both the Income-tax Officer and the Appellate Assistant Commissioner held that what was paid by the assessee company as interest under Section 34 of the Land Acquisition Act was a part of the compensation money; in other words, it was a part of the price of the land acquired. In that view, they thought that it was a part of the capital expenditure and was, therefore, not deductible from the total income. It appears from "the order passed by the Tribunal that they thought the position to be similar to interest payable on trade debts. But in that opinion also, they do not appear to have been confirmed because after making that observation, they immediately said that if the deduction was not permissible under Sub-clause (iii) of Clause 2 of Section 10, it was admissible under Sub-clause (xv). On the facts of the case, the deduction cannot be permitted under Sub-clause (iii), because the interest was not paid on any capital borrowed for the purposes of the business.