Allahabad High Court
Commissioner Of Income-Tax vs Gorawara Plastics And General ... on 11 December, 2006
Bench: R.K. Agrawal, Vikram Nath
JUDGMENT
1. By means of the present application filed under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Commissioner of Income-tax, Meerut, seeks to direct the Income-tax Appellate Tribunal, Delhi (hereinafter referred to as "the Tribunal"), to draw a statement of the case and refer the following question of law for the opinion of this Court:
Whether, on the facts and circumstances of the case, the learned Income-tax Appellate Tribunal was justified in deleting the disallowance of Rs. 4,65,539 made.on account of interest on term loan?
2. We have heard Sri A.N. Mahajan, learned standing counsel for the Revenue, and have perused the order dated March 16,1998, passed by the Tribunal.
3. We find that under the agreement entered into by the respondent-assessee with the Hongkong and Sanghai Banking Corporation, a term loan was sanctioned for being utilised for a particular project. For one reason or the other, the project could not take off during a substantial part of the previous year relevant to the assessment year in question and the respondent-assessee as a prudent businessman invested the entire amount of term loan of Rs. 30,00,000 in the equity shares of M/s. Samtel India Ltd., and M/s. Teletube Electronic Ltd., with whom the respondent-assessee was having business relations. It may be mentioned here that the respondent-assessee had shown a sum of Rs. 5,84,000 as income from dividend in respect of the investment made by it in the shares of other companies and the respondent-assessee had paid a sum of Rs. 4,65,539 towards interest to the Hongkong and Sanghai Banking Corporation. The assessing authority had disallowed the claim of the interest on the ground that the amount of term loan was not utilised for the purpose for which it was sanctioned and, therefore, it cannot be said to have been utilised for the purpose of the business. The claim of the respondent-assessee was, therefore, not admissible under Section 36(1)(iii) of the Act. The alternative plea for deduction under Section 57(iii) of the Act was also not accepted. The order was upheld in appeal by the Commissioner of Income-tax (Appeals). However, the Tribunal has accepted the claim of the respondent-assessee both under Section 36(1)(iii) and in the alternative under Section 57(iii) of the Act on the ground that the respondent-assessee had spent a sum of Rs. 24,84,460 in acquiring/creating fixed assets from its internal accrual during the year under consideration and, therefore, it cannot be said that the term loan had not been utilised. Moreover, we find that in the memorandum and articles of association of the respondent-assessee, investment in shares was specified and the respondent-assessee under law could be treated to be doing business of investment in shares, therefore, the interest paid by it to the Hongkong and Shanghai Banking Corporation is allowable. Even otherwise it has been found that the respondent-assessee had earned dividend of Rs. 5,84,000 during the year under consideration and merely because no dividend has been received in respect of the amount invested by it in the two firms could not make any difference in view of the decision of the apex court in the case of CIT v. Rajendra Prasad Moody .
4. In view of the aforesaid discussion, we are of the considered opinion that the order of the Tribunal does not suffer from any legal infirmity. The findings recorded by the Tribunal for deletion of the disallowance of Rs. 4,65,539 are based on appreciation of evidence and material on record and is in conformity with the principle laid down by the apex court in the case of CIT v. Rajendra Prasad Moody . Thus, it does not give rise to the question of law proposed by the Commissioner of Income-tax, Meerut.
5. The application is accordingly rejected.