Income Tax Appellate Tribunal - Delhi
Arun Shourie vs Commissioner Of Income-Tax on 4 June, 1990
Equivalent citations: [1990]34ITD41A(DELHI)
ORDER
Anand Prakash, Accountant Member
1. Through this application, the assessee requests that we should draw up the statement of the facts of the case and refer for the valued opinion of their Lordships of the Hon'ble Delhi High Court, the following 13 questions:
1. Whether on the facts and in the circumstances of the case, the interest payment of Rs. 7,785 on the borrowing from the bank was deductible from the interest received by the applicant?
2. Whether the Tribunal was correct in law in arriving at a conclusion different from the one recorded by the Tribunal in respect of the immediately preceding year on exactly the same facts (and which conclusion in law in the earlier year had been accepted by the Department)?
3. Was it not imperative for the Tribunal in law and as per the practice obtaining, to refer the matter to a Special Bench in case it wanted to review another order of the Delhi Bench of the Tribunal or review the same in the case of the same assessee, though it was for a different year but there was no change in the facts or material whatsoever?
4. Could the Tribunal come to a conclusion totally contradictory to the conclusion reached by the earlier members manning the same Tribunal on the same set of facts? [1977] 110 ITR 453 (Mad.)
5. Was the Tribunal not bound, on the principles of natural justice and judicial dealing, to not to go behind the findings reached in prior assessment year when no fresh fact or circumstances were brought to light, either by material already on record or by any additional evidence? [1967] 64 ITR 388 (AP)
6. Was the Tribunal justified in reopening its own finding reached in an earlier year's assessment proceedings after due enquiry, in a subsequent year when the earlier finding was not admittedly arbitrary or perverse and no fresh facts were found in the subsequent assessment year?
7. Would such a conclusion as arrived at by the Tribunal this year without any fresh facts or material, be not perverse and shake the confidence of the public in judicial procedure as the finding recorded last year directly covered the issue in this year and did not warrant a fresh finding which was diametrically opposite to the earlier finding? [1977] 110 ITR 453 (Mad.)
8. Was the Appellate Tribunal not bound by its own decisions rendered on the same issue in the preceding year which has a binding effect on the assessee as well as revenue? [1984] 149 ITR 609 (Mad.)
9. Could the Tribunal have any right or jurisdiction in law to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts and in the case of the same assessee? [1977] 110 ITR 453 (Mad.)
10. Was the Tribunal not bound to place the matter before the President of the Tribunal for referring the matter to a Full Bench of the Tribunal when it wanted to take an opinion different from the one taken by an earlier Bench on the same facts? [1977] 110 ITR 453 (Mad.)
11. Was the Tribunal not bound not to contradict itself and come to a diametrically opposite view later, when it had taken a particular view on the scope and the effect of a statutory provision in an earlier year? [1969] 73 ITR 1 (Mad.)
12. Whether the procurement of loan from Bank against term fixed deposit can be taken or not having been taken for earning income, in view of the fact that the loan against the term fixed deposit is taken for enabling to full interest to continue accruing on the term fixed deposit?
13. Whether the case law cited in the order dated 21 August, 1987 relating to normal borrowing from Bank, for claiming deduction of income and the extent of interest accruing on the loan, can be taken to be on all forms with a case where loan is taken against own deposits of the assessee?
2. The relevant facts may be noted. The assessee is an individual. He derived income, inter alia, from salary and interest from bank, F.D.Rs., deposits with companies, UTI etc. The interest derived by the assessee from F.D.Rs. with the banks during the accounting period, aggregated to Rs. 22,551. As against the said F.D.Rs., theassessee had borrowed funds and advanced them to his HUF from which no interest was charged by the assessee. On such borrowings from the bank, Rs.7,685 were paid by the assessee by way of interest. The assessee set off the said interestofRs.7,685 against the interest earned by theassessee from the said F.D.Rs. The aforesaid claim of the assessee was rejected by the ITO as untenable. On appeal, the learned AAC confirmed the order of the ITO.
3. Against the aforesaid order, the assessee filed appeal to the Tribunal, and it was urged on behalf of the assessee by his counsel that the assessee's claim was allowable Under Section 57(iii) of the IT Act, 1961 and that, in respect of assessment year 1980-81, the Tribunal had accepted similar claim of the assessee. A copy of the said order of the Tribunal, being ITA No. 1966/Del/85 dated 30th December, 1986, was placed on record. la particular, emphasis was laid on the observations of the Tribunal in paras 5 & 6 and it was urged that 'the matter being fully covered by the said judgment of the Tribunal the assessee's claim should be accepted for this year also.
4. The Tribunal, after considering the facts of the case and the rival submissions, pointed out that it had been determined by their Lordships of the Hon'ble Supreme Court in the case of CIT v. Rajendra Prasad Moody [1978] 115 ITR 519, 522, that-
What Section 57(iii) requires is that the expenditure was to belaid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of Section 57(iii) and, that purpose must be making or earning of income. Section 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned....
After noting the law as above, the Tribunal applied it to the facts of the present case by observing, inter alia, as below:
For applying the aforesaid test to die facts of the present case, we must therefore ascertain as to what is the purpose of the expenditure incurred by the assessee, and what is the nature of the income against which the said deduction is being claimed. The purpose of the expenditure incurred by the assessee was to obtain loan from the bank to meet his personal obligation to his family to provide funds to it to construct the house. The purpose had no co-relation what-so-ever with the making of the FDRs with the bank and earning interest therefrom. The income, which is being earned by the assessee, and which is being sought to be taxed Under Section 56, is the income from interest on FDRs. The expenditure, which is incurred to earn this income shall be set off against it Under Section 57(iii). The expenditure which the assessee has incurred by way of paying interest to the banks, does not however have as its object, the earning of the income from interest on FDRs. It is provision of the funds to the family as a member of the family. There is, thus, no co-relation what-so-ever between the purpose of the expenditure and the income from interest earned on FDRs. This be so, there is no question of any deduction Under Section 57(iii) of Rs.7,685.00 against the said income from FDRs. There is a catena of case law which says that interest paid on moneys borrowed for personal expenses or for payment of advance tax or for payment of income-tax or for payment of annuity deposit or for payment of wealth-tax or for payment of estate duty is not to be allowed as a business expenditure Under Section 57(iii). Reference may be made to the following cases in this regard:
(1) Bai Bhuriben Lallubhai v. CIT [1956] 29 ITR 543 (Bom.);
(2) CIT v. M.P. Jatia 1972 TLR 1016 (All.);
(3) Mrs. Arundhati Balkrishna v. CIT [1976] 102 ITR 356 (Guj.);
(4) Balmer Lawrie & Co. Ltd. v. CIT [1960] 39 ITR 751 (Cal.);
(5) Gopaldas Dahyabhai Lavsi v. CIT [1977] 108 ITR 531 (Guj.);
(6) Roopchand Chabildass & Sons v. CIT [1967] 63 ITR 166 (Mad.);
(7) Mannalal Ratanlal v. CIT [1965] 58 ITR 84 (Cal.);
(8) MM. Thapar v. CIT [1978] 114 ITR 331 (Cal.);
(9) Smt. Padmavati Jaykrishna v. CIT [1975] 101 ITR 153 (Guj.);
(10) T.S. Krishna v. CIT [1973] 87 ITR 429 (SC);
(11) Basant Kumar Aditya Vikram Birla v. CIT [1968] 70 ITR 657 (Cal.); and (12) CIT v. Mrs. Indumati Ratanlal [1968] 70 ITR 353 (Guj.).
5. They further observed as below :
One of the pleas taken - income of the cases mentioned above was that, but for the borrowing the assessee would have liquidated the fixed deposit carrying interest and, therefore, the interest on borrowings should be allowed by way of deduction against the interest from FDRs. It was held that the nexus between the borrowing and fixed deposits is too remote as such there could be no justification to make the deductions. These observations apply pro tanto to the facts of the present case.
6. The assessee's learned counsel had tried to distinguish the aforesaid case law by pointing out that in the said case it was the individual personal liability of the assessee that was being sought to be liquidated by borrowing the funds from the banks, whereas in the assessee's case it was not the individual liability but the liability towards the HUF that was being sought to be met, and so the above case law would not apply to the assessee's case. We see no merit in the above submission of the learned counsel for the assessee. The distinction is entirely superficial. What has to/be seen is the purpose of expenditure, as emphasised by the Hon'ble Supreme Court, and if this purpose is not related with the earning of the income, which is assessable Under Section 56, the expenditure is not to be allowed. It is not material what the purpose of expenditure was, whether it was to discharge the individual liability or whether it was to provide funds to the HUF. In either case, it was not to earn the income which was assessable Under Section 56, and so it is not deductible Under Section 57(iii).
7. After having observed as above, the Tribunal noted that- -
the aforesaid catena of case law and the aforesaid judgment of the Supreme Court were not brought to the attention of our learned brothers when they decided the appeal relied upon by the assessee. When so many authorities, including those of the Hon'ble Supreme Court be available for our guidance, it would be entirely against law for us to ignore the guidance provided by the Hon'ble Supreme Court and the High Courts. We would not be legally justified to do so and as such we hold that the assessee's claim for deduction of interest on borrowings from the bank against the income from FDRs is not justified. The assessee's request for referring the matter to a Special Bench in case the viewpoint of earlier Bench was not acceptable to us would have relevance if the aforesaid catena of the case law was not available to us, no reference to another forum is, in our opinion, necessary. Accordingly, we rejected the assessee's request in this respect.
8. It is in the setting of the aforesaid facts that we have to see whether the questions of law, as proposed by the assessee are referable questions of law. Question Nos. 1, 12 & 13 are, no doubt, mixed questions of fact and law. But, the answer to them is self-evident in view of the judgment of their Lordships of Hon'ble Supreme Court in the case of Rajendra Prasad Moody (supra). No useful purpose would, therefore, be served by referring these questions to the Hon'ble High Court, as the answer to them has already been concluded by the above judgment of the Hon'ble Supreme Court,
9. Question Nos. 2 to 9 and 11 raise issues as to whether the subsequent Bench of the Tribunal could take a different view from its judgment in an earlier year's assessment in the case of the same assessee. Inasmuch as the aforementioned judgment of the Hon'ble Supreme Court concludes the issue in the present appeal, and it was not brought to the attention of the earlier Bench, it would not be possible to say that a referable question of law arises in respect of the aforesaid aspect, because the judgment of the Hon'ble Supreme Court overrides the order of the Tribunal. So no useful purpose would be served on the facts of the present case by referring the questions as proposed by the assessee for the valued opinion of their Lordships.
10. Similar observations apply with regard to Question No. 10. Reference to a Full Bench may be justified if the judgment of the Hon'ble Supreme Court is not available. But once the issue is concluded by the Supreme Court, no useful purpose would at all be served by referring the matter to a Full Bench of the Tribunal.
11. Accordingly, the Reference Application stands rejected.
V.P. Elhence, Judicial Member
1. I have carefully gone through the order proposed by my esteemed brother. As it has not been possible for him to agree to the suggestion made by me to refer one question for the opinion of the Hon'ble High Court, it has become necessary to record the following dissent
2. I am of the view that the following question of law, which arises out of the order of the Tribunal, deserves to be referred to the Hon'ble High Court for its esteemed opinion:
Whether on the facts and in the circumstances of the case the interest payment of "Rs. 7,785 on the borrowing from the bank was deductible from the interest received by the assessee from FDRs with the banks?
However, I agree with my esteemed brother that the other questions need not be referred. My reasons for holding that the abovementioned question should be referred to the Hon'ble High Court are as follows. In para 8 of the proposed order of my esteemed brother it has already been recognised that the above question is a mixed question of fact and law. Therefore, the question whether, on the facts of the present case and in the light of the decisions [which have been mentioned in para 4 of the Tribunal's order dated 21-8-1987 including the decision of the Hon'ble Supreme Court in the case of Rajendra Prasad Moody (supra)]. The assessee was entitled to the set off of the interest payment in question, would be a referable question. The further point that the pattern of facts for the preceding as well as the assessment year in question are the same; that no reference was filed by the department against the decision of the Tribunal for the earlier assessment year and that neither the Bench deciding the case of the assessee for the assessment year in question followed the order in the case of the assessee for the earlier assessment year nor accepted the assessee's request for the reference of the case to a Special Bench, also acquires significance in this connection. I am, therefore, of the view that the question mentioned above is entitled to be referred to the Hon'ble High Court and that the Reference Application should not be rejected.
ORDER UNDER SECTION 255(4) Per Bench-As it has not been possible for us to come to an agreed conclusion in this Reference Application, the following question is referred for the valued opinion of the Hon'ble Third Member under Section 255(4) of the Income-tax Act, 1961:
Whether on the facts and in the circumstances of the present case, the following question is referable to the Hon'ble High Court as a mixed question of fact and law :
'Whether on the facts and in the circumstances of the case the interest payment of Rs. 7,785 on the borrowing from the bank, was deductible from the interest received by the assessee from FDRs with the banks?.
ORDER G. Krishnamurthy, President
1. On account of a difference of opinion as to whether a question of law arises out of the order of the Tribunal in ITA No. 5243 (Del.) of 1985 relating to the assessment year 1981-82, the following point of difference has been referred to me as Third Member under Section 255(4) of the Income-tax Act:
Whether on the facts and in the circumstances of the present case, the following question is referable to the Hon'ble High Court as a mixed question of fact and law:-
Whether on the facts and in the circumstances of the case the interest payment of Rs. 7,785 on the borrowing from the bank, was, deductible from the interest received by the assessee from FDRs with the banks?'
2. The brief facts are: The assessee was in receipt of, inter alia, interest on fixed deposits aggregating to Rs. 22,551. The assessee borrowed certain sum of money from the banks on the security of these fixed deposits, which money was utilised in the construction of a house of the joint family of which the assessee is one of the coparceners. The amount of interest paid on the borrowed money, which came to Rs. 7,685 was claimed as deductible against this interest from the fixed deposits of Rs. 22,551. A similar claim made by the assessee in the earlier assessment year 1980-81 was allowed by the Tribunal vide its order in ITA No. 1966 (Del.) of 1985. But when a claim made by the assessee for the year was disallowed and when the matter again came up before the Tribunal and when the assessee relied upon the earlier order of the Tribunal in support of its claim for deduction of the sum in question, the Tribunal declined to follow its earlier order on the ground that there was a decision of the Supreme Court in the case of Rajendra Prasad Moody (supra), which did not permit such deduction and the attention of the Tribunal for the earlier year was not invited to this decision and therefore that decision of the Tribunal was not to be followed. The attention of the Tribunal was also drawn to the fact that if they decide to dissent from the earlier view, they ought to refer the matter to a larger Bench. This request also was turned down again on the ground that when the matter was concluded by the decision of the Supreme Court, no useful purpose would be served by referring the matter to the Special Bench of the Tribunal, which is inferior to the Supreme Court and ought to follow the law laid down by the Supreme Court. Thus observing the claim of the assessee was rejected departing from the view taken by the Tribunal in the earlier year.
3. Aggrieved by the order of the Tribunal, the assessee raised as many as 13 questions, said to be questions of law, arising out of the order of the Tribunal, the gist of which is whether the Tribunal is justified in departing from its earlier view on the same set of facts without referring the matter to the Special Bench when a request to that effect was made before it. The learned Accountant Member, who wrote the leading order after referring to all these questions in his order held that no question of law arises out of the order of the Tribunal all because the matters raised were either questions of fact or though some of them are mixed questions of law and fact, they were concluded by the decision of the Supreme Court in the case referred to above. In paragraph 8 of his order the learned Accountant Member observed:
8. It is in the setting of the aforesaid facts that we have to see whether the questions of law, as proposed by the assessee are referable questions of law. Question Nos. 1, 12 & 13 are, no doubt, mixed questions of fact and law. But, the answer to them is self-evident in view of the judgment of their Lordships of Hon'ble Supreme Court in the case of CIT v. Rajendra Prasad Moody, referred to above. No useful purpose would, therefore, be served by referring these questions to the Hon'ble High Court, as the answer to them has already been concluded by the above judgment of the Hon'ble Supreme Court.
As I have already mentioned in respect of the other questions, he held them to be questions of fact.
4. But the learned Judicial Member did not agree with the above view expressed. He held that when in paragraph 8 of the order of the learned Accountant Member, he recognised that question Nos. 1, 12 & 13 were mixed questions of law and fact, they should have been referred to the Hon'ble High Court notwithstanding that there was a decision of the Supreme Court in the case of Rajendra Prasad Moody (supra) because the question as to whether the law enunciated by the Supreme Court is properly appreciated, understood, interpreted and applied, is itself a question of law requiring reference to the Hon'ble High Court because the law laid down by the Supreme Court being the law of the land interpretation of such a law always gives rise to a question of law. He further pointed out that against the order of the Tribunal for the earlier assessment year 1980-81 allowing the claim of the assessee, the department had not sought any reference and thus the question had become final and when the facts continued to be the same, a departure should not have been made and a reference to the Special Bench should have been made and non-making of a reference to the Special Bench would also become material and relevant as a question of law. He therefore held that the following question of law did arise out of the order of the Tribunal:
Whether on the facts and in the circumstances of the case, the interest payment of Rs. 7,785 on the borrowing from the bank was deductible from the interest received by the assessee from FDRs with the banks?
Thus there was a difference of opinion between the learned members, which was referred to me for my opinion.
5. In my opinion for the reasons mentioned by the learned Judicial Member, with which I entirely agree, I am of the opinion that a question of law does arise out of the order of the Tribunal. It is of particular significance to note that both the learned Members have agreed that the order of the Tribunal give rise to mixed questions of law and fact. When such is the position, such a question requires to be referred to the Hon'ble High Court for its opinion as laid down by the Supreme Court in the case of Sree Meenakshi Mills Ltd. v. CIT [1951] 31 ITR 28. Secondly the question whether the decision of the Supreme Court in the case of Rajendra Prasad Moody (supra) covers the issue in question or not is a matter of opinion and interpretation and application of the law laid down by the Supreme Court and that itself would give rise to a question of law because the matter decided by the Supreme Court is not a direct decision on the issue. Judging from this angle, there does not seem to be really any difference of opinion between the learned Members except on the ground whether the decision of the Hon'ble Supreme Court in the case of Rajendra Prasad Moody (supra) did or did not cover the issue that arose in this case. I am therefore of the opinion that a question of law does arise out of the order of the Tribunal and since the question referred to me is already formulated by my learned Brothers, I do not wish to express any opinion other than to say that the order of the Tribunal does give rise to a mixed question of fact and law and that mixed question of fact and law has to be referred to the Hon'ble High Court for its opinion.
6. The matter will now go before the regular Bench for decision according to majority view.