KERALA ROAD LINES versus COMMISSIONER OF INCOME TAX, COCHIN

Citation: [2008] 5 S.C.R. 42 · Decided: 12-03-2008 · Supreme Court of India · Bench: ASHOK BHAN · Disposal: Disposed off

Judgment (excerpt)

(2008] 5 S.C.R. 42 
A 
KERALA ROAD LINES 
~ 
v. 
COMMISSIOl\JER OF INCOME TAX, COCHIN 
(Civil Appeal No. 5308-5309 of 2002) 
B 
MARCH 12, 2008 
(ASHOK BHAN AND J.M. PANCHAL, JJ.) 
Income Tax Act, 1961: 
c 
s. 37 - Business expenditure - Deduction of - Amount 
of interest paid by assessee on delayed payment of purchase 
consideration - Pursuant to agreement for purchase of land -
HELD: Income Tax Appellate Tribunal rightly held the amount 
of interest as expenditure u/s 37(1). 
D 
The assess1~e. pursuant to an agreement for 
purchase of land, paid an interest of Rs. 4 lacs for delayed 
payment of purchase consideration. The assessee 
.... 
claimed the said amount as revenue expenditure. The 
assessing authority disallowed the claim holding the 
E payment of interest as capital expenditure. The order was 
confirmed by the Commissioner of Income Tax (Appeals) 
as regards the interest referable to lands sold to 
assessee's sister concerns, and gave a part relief towards 
the land retained by the assessee. The Income Tax 
F 
Appellate Tribum:1I allowed the appeal of the assessee 
holding that it had entered into an agreement to purchase 
the entire land, including the buildings standing thereon 
~ 
which was demolished by the assessee and sold as scrap 
material, and since the said sale price was treated as 
business income, payment of interest of Rs. 4 lacs by the 
G assessee bein£J a contractual obligation was an 
expenditure u/s 37 of the Income Tax Act, 1961. Two 
references were made to the High Court: one at the 
instance of the Revenue with regard to assessee's claim 
-r ' 
for interest to be treated as revenue expenditure u/s 37 
H 
42 
KERALA ROAD LINES v. COMMISSIONER OF 
43 
INCOME TAX, COCHIN 
f 
and the other at the instance of the assessee with regard A 
to power of Tribunal to rectify its order passd u/s 256(1). 
The latter was answered by the High Court against the 
assessee relying on its earlier decision whereagainst petition 
for special leave had been dismissed by the Supreme 
Court. Aggrieved, the assessee filed CA No. 5308 of 2002. 
B 
> 
As regards the reference with respect to s.37 of the 
Act, the High Court held that the assessee was in transport 
business and therefore the interest paid on delayed 
payment towards purchase of land would not be covered 
by provisions of s.37(1 ). The assessee challenged this c 
order in CA No. 5309 of 2002. 
Allowing CA No. 5309 of 2002 and dismissing CA No. 
5308 of 2002, the Court 
HELD: 1. The Income Tax Appellate Tribunal in its D 
order has categorically recorded that the sale proceeds 
of the scrap material after demolishing the structures 
standing on the land was treated as business income of 
the assessee. In this view of the matter, the Tribunal was 
right in observing that the payment of interest amounting 
E 
to Rs.4 lacs, which was the contractual obligation, would 
also be business expenditure. The High Court has erred 
in recording a finding to the contrary. The order passed 
by the High Court is set aside and that of the Tribunal 
treating the income of Rs. 4 lacs as revenue expenditure 
is restored. [para 11] [47-E, F; 48-A] 
F 
2. In view of the dismissal of the special leave 
" 
petitions against the relied on judgment, the order passed 
by the High Court with regard to power of the Tribunal to 
rectify the order passed u/s 256(1) of the Income Tax Act, 
1961 does not warrant interference. [para 4] [45-C, DJ 
G 
CIVILAPPELLATE JURISDICTION : Civil Appeal No. 5308 
of 2002. 
~ 
From the final Judgment and order dated 13.11.2001 of 
the High Court of Kerala at Ernakulam in ITR No. 310 of 1999. 
H 
44 
SUPREME COURT REPORTS 
[2008] 5 S.C.R. 
A 
WITH 
Civil Appeal No. E>309 of 2002. 
Krishnan Venugopal and A. Raghunath for the Appellant. 
B 
T.S. Doabia, O.P. Srivastava (for B.V. Balaram Das) for 
the Respondent. 
., 
The Judgment of the Court was delivered by 
ASHOK BHAN, JI. These two appeals have been filed by 
c 
the appellant-assessee (hereinafter referred to as 'the 
assessee') with the leave of the Court against a common 
judgment dated 13th day of November, 2001 passed by the High 
Court of Kerala at Ernakulam in Income Tax Reference Nos.234 
of 1997 and 310of1999. 
D 
2. The following two questions were referred by the Income 
Tax Appellate Tribunal, Cochin to the High Court at the instance 
of the revenue in ITR No.234 of 1997 for its opinion: 
'I. 
"1. Whether, on the facts and in the circumstances of the 
case, the Tribunal is right in 

Excerpt shown. Read the full judgment & AI analysis in Lexace.