Commissioner Of Income Tax, Faridabad v. M/S Haryana Television Ltd., Faridabad

ITA No. 634 of 2008 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 634 of 2008 (O&M) Date of Decision: 8.9.2015 Commissioner of Income Tax, Faridabad ....Appellant. Versus M/s Haryana Television Ltd., Faridabad ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment?the judgment? 2.To be referred to the Reporters or not? Yes 3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE RAMENDRA JAIN. PRESENT: Mr. Tajender K. Joshi, Advocate for the appellant. Mr. Sudershan Goel, Advocate with Ms. Rupinder Kaur, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been filed by the revenue under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the orderdated 28.9.2007 (Annexure A-III) passed by the Income Tax AppellateTribunal, Delhi Bench “C”, New Delhi (hereinafter referred to as “theTribunal”) in ITA No. 2212/DEL/2004 for the assessment year 1997-98.The appeal was admitted by this Court vide order dated 15.12.2008 forconsidering the question proposed in para 7 of the appeal which is to thefollowing effect:- Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT has erred in law in holding thatthe assessee company is entitled for the deductionu/s 24(1)(vi) though the borrowed capital was notutilized for acquisition, renewal, repair, construction orreconstruction of the property which had been let outbut had utilized for acquiring entire equity shareholding of the company, so as to transfer the controland management of the company? 2.A few facts necessary for disposal of the present appeal asnarrated therein are that the assessee filed its return of income on28.11.1997 for the assessment year 1997-98 declaring the income at` 3,81,405/-. The assessee was having rental income of ` 15,12,000/-and claimed deduction of ` 10,00,000/- from the said income underSection 24(1)(vi) of the Act. The Assessing Officer vide assessmentorder dated 26.11.1999 (Annexure A-I) disallowed the said deduction asthe assessee had not purchased/constructed any building from the fundson which the interest was paid. Feeling aggrieved, the assessee filed anappeal before the Commissioner of Income Tax (Appeals), Faridabad[hereinafter referred to as “the CIT(A)”]. The CIT(A), Faridabad videorder dated 5.3.2004 (Annexure A-II) while partly accepting the appeal ofthe assessee upheld the disallowance of ` 10,00,000/- under Section 24(1)(vi) of the Act. Being dissatisfied with the order, Annexure A-II, theassessee filed the appeal before the Tribunal, who vide order dated28.9.2007 (Annexure A-III) allowed the appeal and set aside the findingof the CIT(A) by holding that the assessee was entitled to deductionunder Section 24(1)(vi) of the Act. Hence, the present appeal by therevenue. 3.Learned counsel for the revenue submitted that the claim ofthe assessee that interest on loan was deductible under Section 24(1)(vi) of the Act was erroneous. The loan was not taken for the purposesof purchase of land and construction and in such a situation, Section 24(1)(vi) of the Act was not attracted as the amount was not utilized foracquisition, renewal, repair, construction or reconstruction of theproperty. 4.On the other hand, controverting the aforesaid submissions,learned counsel for the assessee besides supporting the order passedby the Tribunal and relying upon the judgment in Commissioner ofIncome-Tax v. Sunil Kumar Sharma (2002) 254 ITR 103 submitted thatthe assessee had purchased the land and constructed building thereonfor which the loan was taken and hence deduction under Section 24(1)(vi) of the Act was rightly allowed by the Tribunal. 5.After hearing learned counsel for the parties, we do not findany merit in the appeal. 4.On the other hand, controverting the aforesaid submissions,learned counsel for the assessee besides supporting the order passedby the Tribunal and relying upon the judgment in Commissioner ofIncome-Tax v. Sunil Kumar Sharma (2002) 254 ITR 103 submitted thatthe assessee had purchased the land and constructed building thereonfor which the loan was taken and hence deduction under Section 24(1)(vi) of the Act was rightly allowed by the Tribunal. 5.After hearing learned counsel for the parties, we do not findany merit in the appeal. 6.Section 24(1)(vi) of the Act at the relevant time provided thatwhere the property had been acquired, constructed, repaired, renewedor re-constructed with borrowed capital, the amount of interest payableon such capital was a permissible deduction from income from houseproperty. Thus, it would be required to be seen in the present casewhether the deduction of interest amounting to ` 10,00,000/- paid by theassessee on the borrowed funds satisfied the requirements of clause (vi)of sub-section (1) of Section 24 of the Act. 7.The Assessing officer had disallowed the claim of theassessee for deduction of interest at ` 10 lacs under Section 24(1)(vi) ofthe Act which was upheld by the CIT(A). However, the Tribunal while reversing the said orders of the Assessing Officer and the CIT(A) heldthat the assessee has fully justified the claim for deduction of interestunder Section 24(1)(vi) of the Act. The Tribunal concluded that as peragreement dated 20.11.1975, the assessee had mortgaged its propertywhich created a charge over the assets of the company and the saidliability continued. Subsequently, vide agreement dated 15.10.1992, theproperty of the assessee stood transferred and as per clause (3) thereof,the land and building of the company was handed over to the purchaserafter the transfer of shares. Therefore, the liability undertaken by theassessee for payment of loan and interest thereon was for acquiring theproperty of the company and there is direct nexus between the loanliability and the acquisition of the property. The relevant findingsrecorded by the Tribunal read thus:- “13.We have carefully considered the facts andcircumstances of the case and the rival submissions.As per the agreement dated 20.11.1975 the assesseecompany had mortgaged its property. The saidmortgage created a charge over the assets of thecompany. The liability of the company continued.Subsequently vide agreement dated 15.10.1992 theproperty of the company stood transferred and asprovided in clause (3) of the agreement which hasbeen reproduced above, the land and building of thecompany was handed over to purchaser after thetransfer of shares in favour. Condition for thepayment of loan of financial institutions throughHaryana State Electronics Corporation was for “13.We have carefully considered the facts andcircumstances of the case and the rival submissions.As per the agreement dated 20.11.1975 the assesseecompany had mortgaged its property. The saidmortgage created a charge over the assets of thecompany. The liability of the company continued.Subsequently vide agreement dated 15.10.1992 theproperty of the company stood transferred and asprovided in clause (3) of the agreement which hasbeen reproduced above, the land and building of thecompany was handed over to purchaser after thetransfer of shares in favour. Condition for thepayment of loan of financial institutions throughHaryana State Electronics Corporation was for acquiring the property of the company. Thus it cannotbe said that the liability undertaken by the assesseefor payment of loan and the liability of the interestthereon was not for acquiring the property of thecompany. In our view there is direct nexus betweenthe loan liability and the acquisition of the property.The Assessing Officer was, therefore, not justified inholding that since the assessee had not borrowed theamount for acquiring the property, the conditions ofSection 24(1)(vi) are not satisfied. In our view theAssessing Officer as well as the learned CIT(A) havenot properly considered the conditions in theagreement. On perusal of the relevant clauses of theagreement, the intention of the parties becomes veryclear. The purchaser purchased the property of thecompany by undertaking the liability for paying theremaining unpaid loan of the financial institutions.Section 24 deals with deduction from income fromhouse property. As per clause (b) of Section 24 ofIncome Tax Act, the deduction is permissible onaccount of interest where the property has beenacquired, constructed, repaired, renewed orreconstructed with borrowed capital. The amount ofinterest payable on such capital against saidborrowings is deductible under Section 24 of theIncome Tax Act so far as the instant case isconcerned. Since the outstanding loan liability was taken over by the assessee simultaneously at thetime of transfer of the property of the company underthe same agreement, the taking over of this loanliability will tantamount to the borrowing of the amountfor acquiring the property. The term “interest onborrowed capital” as appearing in the old provision ofsection 24(1)(vi) will cover the interest paid by theassessee because the borrowed capital was utilizedby the assessee for acquiring the property. The logicof the Assessing Officer that in the assessment yearunder consideration, the assessee had not borrowedfunds or had not constructed the property out of theborrowed funds is not in consonance with the relevantstatutory provisions. The terms of statutory provisionsare to be construed to carry out the purpose andobject behind such enactment and to advance theintention of the legislature. What is necessary is thatthe amounts should have been borrowed directly orindirectly for acquiring the property and the earningsout of tin's property in the shape of rent should beincome of the assessee from such property. In theinstant case it is not disputed that the assesseecompany was deriving rental income by letting out theproperty. In the balance sheet of the assesseecompany as well as in the audit report, the facts andfigures relating to quantum of interest and rentalincome have been specifically given. Thus, there is a direct nexus between the rental income and theinterest liability paid by the assessee. In our opinion,therefore, the assessee fully qualifies for the claim ofdeduction.” direct nexus between the rental income and theinterest liability paid by the assessee. In our opinion,therefore, the assessee fully qualifies for the claim ofdeduction.” 8.Nothing could be shown by learned counsel for the revenuethat there was any perversity in the finding of fact recorded by theTribunal. The Assessing Officer as well as the CIT(A) had wronglyadjudicated that since the assessee had not borrowed the amount foracquiring the property, it was not entitled to deduction under Section 24(1)(vi) of the Act. Once it is held that the assessee had borrowed theamount for acquiring the property, as a necessary corollary, it is held thatthe assessee had rightly been allowed deduction of ` 10,00,000/- by theTribunal as interest paid thereon under Section 24(1)(vi) of the Act. 9.The judgment in Sunil Kumar Sharma's case (supra),supported the case of the assessee wherein it was held that the interestportion of the installment of the purchase price of let out property wasallowable as deduction under Section 24(1)(vi) of the Act. 10.In view of the above, the substantial question of law isanswered against the revenue and the appeal stands dismissed. (AJAY KUMAR MITTAL) JUDGE September 8, 2015 gbs (RAMENDRA JAIN) JUDGE