The Karnataka High Court held that the tribunal was justified in not allowing the claim of interest from the deposits made by the appellant without considering the terms and conditions of the agreement between the parties.
The assessee, M/S. Hutchinson & Co. is engaged in providing services to Holiday Resort Company, for which it receives service charges besides the other income, which was offered for taxation. The assessee entered into an agreement or contract with M/s Prestige Holiday Resorts Company Pvt. Ltd., which is in the business of property development and development of resorts.
The company formed a club i.e Royal Goan Bench Club, which was formed with an objective to secure for its member’s exclusive rights of occupation of certain apartments fully furnished at various locations in India for a specified period each year. In pursuance of the agreement, a trust deed was executed between the parties and the assessee agreed to act as a trustee, as a trust, and in the capacity of the trust company.
A capital bond agreement was executed between Prestige Holiday Resorts Company Ltd., and the assessee wherein it was agreed that Prestige Holiday Resorts Company Ltd which was in the process of constructing the resorts was to provide funds for the assessee to enable it to provide a guarantee to the timeshare holders in respect of pre-construction of the unit of accommodation and Prestige Holiday Resorts Company Ltd agreed to park with the assessee, the funds, which were to be kept in deposit by way of capital bond and interest accrued on capital bond was to be paid by the assessee to Prestige Holiday Resorts Company Ltd.
The assessee made deposits out of the funds given to it by Prestige Holiday Resorts Company Ltd and in return of income it had offered the income derived from deposits and it had also claimed a deduction for the same amount of interest payable to Prestige Holiday Resorts Company Ltd.
The assessing authority concluded the assessment by bringing to tax interest on deposits offered as income but declined to allow interest payable to Prestige Holiday Resorts Company Ltd and held that the assessee had no obligation to make payment to Prestige Holiday Resorts Company Ltd.
The Tribunal on an appeal held that there was no stipulation for payment of interest to Prestige Holiday Resorts Company Ltd in the agreement and no liability accrued to the assessee which was liable to be allowed as deduction.
The division bench of Justice Alok Aradhe and Justice H.T. Nagendra Prasad while setting aside the order of the Tribunal on the grounds that the tribunal failed to take into consideration the terms and conditions of the agreement, thereby remitted the matter back to the tribunal.
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