Income Tax Appellate Tribunal - Delhi
Shanker Lal Ved Prakash vs Deputy Commissioner Of Income Tax on 11 October, 1999
ORDER
V. Dongzathang, Senior Vice President
1. This appeal has been directed against the order of CIT(A) dt. 21st Sept., 1998. The grounds raised in the grounds of appeal ate disposed of as discussed hereunder.
2. The first ground of appeal relates to the nature of loss suffered by the appellant on the purchase and sale of debentures with detachable warrants.
3. The assessee is an HUF consisting of S/Shri V.P. Goyal, Rohit Prakash Goyal, Smt. Usha Goyal and Smt. Rohini Chand Goyal as its members. During the course of assessment proceedings, when the AO examined the trading account in detail, he found that the sales to the extent of Rs. 2,81,540 were credited on account of sale of 3,530 non-convertible debentures of D.C.M. Sri Ram Industrial Enterprises Ltd. without detachable warrants. Similarly, the trading account has also been debited to the extent of Rs. 3,53,000 representing purchase price of above mentioned debentures with detachable warrants. Thus, on this transaction, there was a loss of Rs. 71,460 which has been claimed as business loss. After examining this issue, the AO observed that the purchase and sale of securities debited and credited in the P&L a/c was just to show some sale and some purchase to meet the requirements of trading account ignoring the nexus of expenditure claimed with the sale and purchase of items involved. Otherwise, the assessee had shown income from sale and purchase of securities, etc. under the head 'capital gains'. The presentation of a particular transaction by the assessee in a particular manner does not change the real character of the transaction: The assessee should have shown the profitability or otherwise in respect of the above non-convertible debentures in the same way as it has done in its dealing in respect of other securities. He accordingly treated the loss of Rs. 71,460 suffered by the appellant on the sale of debentures as short-term capital loss as against the claim of business loss. Against this finding, the appellant preferred the appeal before the CIT(A). Vide his order dt. 21st Sept., 1998, in appeal No. 197/1997-98, the CIT(A) has adjudicated this issue. Before the CIT(A), the appellant claimed that though the purchase and sale of debentures was not in the normal course of business, nonetheless it was adventure in the nature of trade. Thus, the loss suffered by it was business loss. After considering the facts and circumstances of the case, the CIT(A) observed that there are two instances of purchases by way of subscription to issue of debentures and sale thereafter. Normal line of business of the appellant was dealing in handloom items and in particular, durries. The instant subscription to the debentures was not in the normal line of business of the appellant. These factors lead to a distinct impression that the transaction in the debentures was not on trading account and that like other transactions in securities, these were on capital account. He, therefore, confirmed the finding of the AO that the loss suffered by the appellant on purchase and sale of debentures was a capital loss and not business loss. As the sate of the debentures took place within a period of 12 months from their purchases, loss suffered by the appellant was short-term capital loss. The appellant has come up in appeal against this finding of CIT(A).
4. During the course of arguments, the learned counsel of the appellant stated that in the instant year, the appellant has purchased 1,240 non-convertible debentures of D.C.M. Sri Ram Consolidated Ltd. on 26th Sept., 1994 for an aggregate sum of Rs. 1,24,000 and had sold the same on 13th Jan., 1995 to Sri Ram Financial Services Ltd. for Rs. 1,02,920. Likewise, it further purchased 2,290 non-convertible debentures of Sri Ram Industrial Enterprises Ltd. on 26th Sept., 1994, for a sum of Rs. 2,29,000 @ Rs. 100 per debenture which were resold by it on the same day (r) Rs. 78 per debenture for a total consideration of Rs. 1,78,620. It was claimed that the above transactions clearly show that the appellant was in this business also. It was also stated that the appellant had not purchased the debentures with a view to making investment. Had it done so, obviously the debentures would have been held by it till the interest became due thereon. Learned counsel further submitted that even a single transaction may result into a business transaction and further in any case, since there are series of transactions of purchase and sale and the intention at the time of purchase was to trade in these debentures, the loss suffered by the appellant ought to have been treated as business loss and should have been allowed as such by the CIT(A). It was also stated that in so far as the genuineness of the loss is concerned, there is no dispute about the same. It was further stated that in this very year, the appellant had done many transactions relating to securities which proves that the appellant was in this trade on regular basis. Even in the earlier years, the appellant had done some transaction in securities and the loss suffered by it was accepted by the AO to be a business loss. The learned counsel stated that even if the transaction in the purchase and sale of debentures cannot be held to be in the normal course of business carried on by it, certainly, such transaction was adventure in the nature of trade and accordingly, the loss suffered on such transaction has to be allowed as business loss. Learned counsel also relied on certain cases to support his arguments.
5. On the other hand, learned Departmental Representative stated that the transaction of purchase and sale of debentures in this year was an isolated transaction. The trading in the debenture was not even remote business of the appellant. Regarding the learned counsel's assertion that nonetheless, the transaction was adventure in the nature of trade, the learned Departmental Representative stated that in order to constitute a transaction as adventure in the nature of trade, it is essential that the transaction was akin to the main activity carried on by the appellant. It was stated that the Hon'ble Supreme Court in the case of G. Venkataswami Naidu & Co. v. CIT (1959) 35 ITR 594 (SC) has laid down this very test for coming to a conclusion whether a particular transaction was adventure in the nature of trade or not. He also relied on the decision of Hon'ble Bombay High Court in the case of CIT v. Himalayan Tiles and Marbles (P) Ltd. (1975) 100 ITR 177 (Bom) for the same proposition. He also stated that the instant transaction does not stand the test on the ratio laid down by the Hon'ble Courts mentioned above and therefore, the instant transaction was not adventure in the nature of trade. Accordingly, the loss suffered by the appellant on the purchase and sale of debentures was rightly held by CIT(A) to be short-term capital loss. In his counter-reply the learned counsel of the appellant reiterated his arguments summarised earlier.
6. We have considered the arguments of the learned counsel of the appellant as well as learned Departmental Representative. It is a settled law that a loss incurred during the course of carrying on a business activity has to be treated as business loss. The word 'business' has been defined in Section 2(13) of the Act which reads as under:
'Business' includes any trading, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture."
The above definition has used the words 'trade' 'commerce' or 'manufacture' or "any adventure or concern in the nature of trade, commerce or manufacture". The Hon'ble Gujarat High Court in the case of CIT v. Motilal Heerabhai Spinning and Weaving Co. Ltd. (1977) 113 ITR 173 (Guj) and Hon'ble Delhi High Court in the case of Bharat Development (P) Ltd. v. CIT (1982) 133 ITR 470 (Del) has observed that the word 'business' is of large and indefinite import and connotes something which occupies the time, attention and labour of a person normally with the object of making profit. Hon'ble Allahabad High Court in the case of Lala Inder Sen, In re (1940) 8 ITR 187 (All), Hon'ble Calcutta High Court in the case of Turner Morission & Co. (1929) ILR 56 (Cal) 211 and the Hon'ble Orissa High Court in the case of Narasingha Kar. & Co. v. CIT (1978) 113 ITR 7-12 (Ori) have held that the word 'business' denotes continuous and systematic exercise of an occupation or profession with an object of making profit. However, the expression 'adventure1 or concern in the nature of trade, commerce or manufacture' has not been defined in the IT Act. But various Courts in the cases Khan Bahadm Ahmed Alladin & Sons v. CIT (1968) 68 ITR 573 (SC), P. Mohd. Meera Khan v. CIT (1969) 73 ITR 735 (SC), Premji Bhimji v. CIT (1971) 81 ITR 179 (Cal), CIT v. H. Holck Larsen (1986) 160 1TR 67 (SC) and CIT v. VA. Trivedi (1988) 172 ITR 95 (Bom) have held that it was not possible to evolve any single test or formula which can be applied in determining whether a transaction is adventure in the nature of trade or not. The answer to question must necessarily depend in each case as the total impression and effect of all the relevant factors and circumstances which determine the character of the transaction. The expression 'adventure in the nature of trade' clearly suggests that the transaction cannot properly be regarded as a trade or business. It is allied to transaction that constitute trade or business but may not be trade or business itself. It is characterised by some of the essential features that make up trade or business but not by all of them and so even an isolated transaction can satisfy the description of an 'adventure in the nature of trade'. The above observation is duly supported by the decisions, of Hon'ble Bombay High Court in the case of Estate Investment Co. Ltd. v. CIT (1980) 121 ITR 580 (Bom), and the decision of Hon'ble Madhya Pradesh High Court in the case of Bhagirath Prasad Bilgaiya v. CIT (1983) 139 ITR 916 (MP). It is not necessary that there should be a series of transactions, both of purchase and of sale, a single transaction of purchase and sale outside the assessee's line of business may constitute adventure in the nature of trade. Neither repetition nor continuity of similar transaction is necessary to constitute a transaction and adventure in the nature of trade. If there is repetition and continuity, the assessee would be carrying on business and the question whether activity is an adventure in the nature of trade can hardly arise. The transaction may be regarded as isolated although a similar transaction may have taken place a fairly long time before. The above observations find support from the decision of Hon'ble Supreme Court in the case of CIT v. Sutlej Cotton Mills Supply Agency Ltd. (1975) 100 ITR 706 (SC). We feel that whether a particular transaction is not in the ordinary course or line of business of the assessee but an isolated or single instance of transaction, the onus was on the Department to prove whether a transaction was adventure in the nature of trade or not. This view was expressed by Hon'ble Supreme Court in the case of Dalmia Cement Ltd. v. CIT (1976) 105 ITR 633 (SC). Even the Hon'ble Bombay High Court in the case of V.A. Trivedi (supra) has expressed the similar view. We feel that the circumstances that the purchase of a commodity though not of a commercial nature but if made solely and exclusively with an intention to re-sell it at a profit or loss could be a strong factor to indicate that the transaction was an adventure in the nature of trade. Similar view was expressed by Hon'ble Gujarat High Court in the case of CIT v. Premji Gopalbhai (1978) 113 ITR 785 (Guj)
7. Considering the various tests and guidelines given by the Hon'ble Courts in the cases mentioned above, we feel that there has been no continuity of this particular business from earlier years. In the asst. yr. 1993-94, the appellant had suffered a loss on this account but no such transaction took place in the asst. yr. 1994-95. Even in the year under consideration, there are only two instances of purchase and sale of debentures and therefore, it cannot be said to be a regular activity of the appellant. We, therefore, hold that the loss suffered by the appellant cannot be said to be a loss suffered during the course of carrying on a business. However, we are in agreement with the observation of the learned counsel that even a single transaction may constitute an adventure or concern in the nature of trade or commerce. The transaction of purchase and sale of securities not new to the appellant. In asst. yr. 1993-94, on similar transaction, the appellant had suffered a loss which was allowed as deduction by the AO himself. The Revenue has failed to point out as to how the transaction relating to debentures during the year was different from that of asst. yr. 1993-94, when the loss was allowed as business loss. Under the circumstances, we hold that loss suffered by the appellant on purchase and sale of debentures was not a short term capital loss but a loss suffered in adventure in the nature of trade. The appellant will also be entitled to consequential benefits available to it.
8. We have also examined whether the loss suffered by the appellant was in the nature of speculation loss. As this issue has not been raised by either of the parties, we do not express any opinion on this issue. This ground of appeal is decided with the above observation.
9. Ground No. 2 relates to the disallowance of expenses aggregating to Rs. 9,91,955 which has been remanded back by the CIT(A) to the AO for consideration afresh.
10. During the course of assessment proceedings when the AO examined the P&L a/c, he noticed that the assessee has debited a sum of Rs. 19,19,783 to its P&L a/c representing various expenses for carrying on its business activities. The major items of expenses claimed were Rs. 8,21,239 on staff training, Rs. 5,41(783 on-foreign travel, Rs. 1,84,800 on salary, Rs. 1,60,011 on telephones and other expenses on car repairs and depreciation, etc. This sum also included an amount of Rs. 71,460 being loss on the sale of debentures discussed in ground No. 1 earlier. Thus, the total deduction for expenses was claimed at Rs. 18,48,323 before disclosure under Voluntary Disclosure of Income Scheme of 1997 (VDIS). In order to judge the genuineness of various expenses, the AO called for the detailed particulars in this regard. After perusing the evidence filed by the assessee, the AO observed that the main business of the assessee was in trading in handloom items. But the records show that actually no trading in this item was done by the assessee which is evident from the fact that for all the asst. yrs. 1993-94, 1994-95, 1995-96 and 1996-97, the closing stock of such items has been constant at Rs. 5,952. The AO, therefore, specifically asked the assessee as to why the entire expenses debited to P&L a/c may not be disallowed as it has not done any business during the year under consideration. The assessee stated before the AO that there was no closure of the business but there was a full in business for a temporary period. The assessee tried to expand its business by exporting the handloom items which is evident that in the asst. yr. 1996-97, it has done some export business. As the business has not come to an end, the expenses debited to the P&L a/c should be allowed as deduction as the same had to be incurred for keeping the existence of business.
11. However, the AO did not accept the contention of the assessee. He held that as no business was being done right from asst. yrs. 1993-94 to 1996-97, the expenses claimed in the P&L A/c cannot be allowed as deduction. Against this finding, the assessee filed an appeal before the CIT(A). The CIT(A) vide his order dt. 21st Sept., 1998, in appeal No. 197/1997-98 had adjudicated this issue. While relying on the decision Karson Das Ranchhod Dass v. CIT (1972) 83 ITR I (Bom), the CIT(A) observed that there may be periods of inactivity and passivity in business, still it may be a going concern. The company may not be able to obtain a single order or execute a single contract, yet the business may be in existence. The CIT(A) also observed that out of total expenses of Rs. 18,48,323 claimed as deduction, the assessee itself has surrendered a sum of Rs. 8,56,369 under VDIS of 1997. Thus, the actual deduction which requires consideration works out to Rs. 9,91,954 only. The CIT(A) in his order held that the business of the assessee was in existence in this year though it was a period of passivity in which no transaction was undertaken. He further observed that the AO has not examined the deduction of these expenses in this perspective. He, therefore, set aside this issue and restored back the same to the records of the AO to examine these expenses and allow such expenses which are incurred for the business of trading in handloom items.
12. The appellant has come up in appeal against the above finding of the CIT(A) by stating that CIT(A) has erred in setting aside this issue rather than deleting the disallowance of expenses made by the AO.
13. The learned counsel stated that the CIT(A) himself has held that the business was in existence though there was passivity in the transaction. It was claimed that having held so, he should have examined the nature and details of these expenses and taken the decision thereon rather than resorting to remand the issue to the AO. The learned counsel further stated that once entire evidences were on record of the AO as well as CIT(A), the CIT(A) was not justified in remanding the issue to the AO. For this purpose, the reliance was placed on the decision of Hon'ble Supreme Court in the case of Hindustan Ferado Ltd. 1997 (89) ELT 16.
14. On the other hand, the learned Departmental Representative supported the order of the CIT(A) and further stated that by such order, appellant has been provided further opportunity to prove its case for deduction.
15. We have considered the arguments of the learned authorised representative as well as the learned Departmental Representative. After considering the facts and circumstances of the case, the CIT(A) had given a definite finding that the business of the appellant was in existence. For keeping the existence of the business, the appellant had to incur certain expenses. He has, therefore, directed the AO to allow reasonable expenses which were necessary for keeping the existence of the business. We have given a careful thought to the observations of the CIT(A) and are inclined to support his views.
16. AO has disallowed the deduction of total expenses debited to P&L a/c as in his opinion, no business was in existence. On the other hand, the CIT(A) has given a finding to the effect that the business was in existence. As the AO has not considered as to whether the entire expenses was relatable to keep the business in existence or only a part of the expenses was reasonable for keeping the business in existence, we hold that the CIT(A) was justified in remanding this issue back to the file of the AO for reconsideration. Accordingly, we do not interfere with the finding of the CIT(A). This ground of appeal is accordingly dismissed.
17. The third ground of appeal relates to the disallowance of Rs. 8,56,369 which was included in the total amount of expenses debited to P&L as discussed in ground No. 2 above. The amount of Rs. 8,56,369 comprising of Rs. 8,21,289 representing expenses, a sum of Rs. 21,080 out of foreign travelling expenses and a sum of Rs. 14,000 out of salary paid to Mrs Rohini Goyal was offered for taxation under VDIS of 1997. Though the amount has been offered under VDIS of 1997 and the taxes have been paid thereon, the AO has not allowed deduction of such expenses as he had disallowed the entire expenses aggregating Rs. 18,48,328 discussed earlier. The issue was, therefore, agitated before the CIT(A). It was stated before the first appellate authority that once this amount of Rs. 8,56,369 which is included in the aggregate amount of Rs. 18,48,323 debited to P&L a/c has been offered for taxation under VDIS of 1997 and the taxes thereon have already been paid, AO should have allowed deduction for the same. However, the CIT(A), after considering the arguments of the appellant, observed that the AO has disallowed expenditure on the ground that the expenses claimed under the above heads were unaccounted. There was a specific mention to this in the certificate issued under VDIS 1997. The CIT(A) therefore, felt that the disclosure made by the appellant under VDIS has no relationship with the expenditure claimed in the P&L a/c. He accordingly confirmed the disallowance of above sum of Rs. 8,56,369 made by AO.
18. The appellant has come up in appeal against the above finding of the CIT(A). While assailing the order of the CIT(A), the learned counsel stated that in the P&L a/c the appellant has debited a total sum of Rs. 19,19,783 and claimed the same as deduction. This included a sum of Rs. 71,460 being loss on the sale of debentures. Thus, the balance amount of Rs. 18,48,323 has been claimed as deduction in respect of its normal business of trading in handloom items. The amount of Rs. 8,56.369 which is in dispute has been offered for taxation under VDIS 1997 was also included in the aggregate amount of Rs. 18,48,323 debited to P&L a/c. The appellant has also paid taxes on such disclosure. Thus, the said amount of Rs. 8,56,369 has to be allowed deduction, as business expenditure. In case the deduction for the same is not allowed, it will amount to double taxation because on this amount of Rs. 8,56,369, the appellant has already paid taxes under VDIS 1997 and again it will have to pay taxes on this amount of disallowance. The learned counsel, therefore stated that the GIT(A) was not justified in confirming the said addition and the same deserves to be deleted on the facts mentioned above.
19. On the other hand, learned Departmental Representative supported the order of the CIT(A) and stated that the CIT(A) has given a categorical finding that the disallowance of Rs. 8,56,369 was made on a different account and even if the same has been offered for taxation under VDIS 1997, the appellant was not entitled to deduction for the same.
20. We have considered the arguments of the learned counsel as well as the learned Departmental Representative. There is no dispute that the amount declared under VDIS' 97 was included in the aggregate amount of Rs. 18,48,323 debited to P&L a/c. There is also no dispute that the taxes have been paid by the appellant on this disclosed amount. From the facts, it is clear that this amount of Rs. 8,56,369 declared under VDIS' 97 was not over and above the total amount of expenses debited to P&L a/c. Actually this amount is included in the aggregate amount debited to P&L a/c. Once the taxes have been paid on this amount, only the balance amount of Rs. 9,91,954 has to be considered for disallowance. The disallowance of amount of Rs. 8,56,369 will result in double taxation. We, therefore, hold that the CIT(A) was not justified in confirming the disallowance of Rs. 8,56,369 and accordingly we delete this addition. This ground of appeal is allowed.
21. The fourth ground of appeal relates to the disallowance of interest paid to the following six parties :
Sl. No. Name Amount (Rs.)
(i) Ved PraKash Goyal 17,56,162 (il) Rohit P. Goyal 9,11,084
(iii) Rahul P. Goyal 8,49,976
(iv) Punjab National Bank 6,54,184
(v) Taj Mahal International 7,31,400
(vi) Broadway 27,066 49,29,872
22. During the course of assessment proceedings when the AO examined the accounts, he found that the assessee has shown the following income under the head 'income from other sources' :
Rs.
Dividend 69,94,728 Interest 7,670 70,02,398 Interest paid 49.28.763 20,73,635
23. When the AO asked the assessee to furnish the details of dividend income as well as interest payment, the assessee vide its letter dt. 17th Dec., 1997 stated that the dividend amount of Rs. 69,42,520 was received on the units of US-64 of UTI in respect of units purchased from the following persons :
Units purchased from Amount of Dividend Rs.
Mr. Rahul Prakash Goel 16,12,000 Mr. Rohit Prakash Goel 16,12,000 Mr. Ved Prakash Goel 32,50,000 Others 4,68,520 69.42,620
24. When the AO examined the issue further, he noticed certain distinctive facts. The units were not transferred in the name of the assessee in the records of UTI. The assessee has received the delivery of the units along with the transfer deeds duly signed by the sellers. The interest claimed to have been paid to Mr. Ved Prakash Goyal, to Mr. Rohit Prakash Goyal and to Mr. Rahul Prakash Goyal was just by book entry and no actual payment of interest has been made to the sellers of the unit. The interest was nothing but compensation for delayed payment of purchase consideration of units the dividend of which was declared as income in the return for the assessment year in question. Though the units were purchased from Goyals mentioned above, the assessee could not make the payment to these sellers who were insisting on payment and the assessee had no liquidity for making the payment. Therefore, the assessee approached its bankers Punjab National Bank to advance overdraft facility against security of units. The banker agreed to grant the overdraft facility but put a condition to grant the facility in the name of the persons who were registered owners as per the records of the UTI. The asseesee approached the sellers and requested them to execute the necessary formalities for obtaining overdraft facility in their respective names and assured them to reimburse them with the amount of interest paid which was much less than the interest which the assessee could have claimed. Considering the above peculiar features of the issue, the AO asked the assessee to explain as to why the interest or for that matter, the compensation paid to the sellers of the units for delayed payment of purchase consideration should not be disallowed because it was not for the purpose of earning dividend income. In response to this query, the assessee had stated that the payment to the sellers was not a capital expenditure or personal expenditure. While relying on the decision of Hon'ble Supreme Court in the case of Seth R. Dalmia v. CIT (1977) no ITR 644 (SC), the assessee stated that the money borrowed from the P.N.B. was wholly and exclusively utilised for the payment of purchase consideration of units the dividend of which were declared as income from other sources. The assessee also placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT v. Modi (P) Ltd. and the decision of Hon'ble Delhi High Court in the case of CIT v. Vinay Bharat Ram (1981) 129 ITR 128 (Del). It was also emphasised that the interest on borrowed money for purchase of shares was an allowable deduction even if the shares have not yielded any income during the relevant assessment year. Various decisions were cited to substantiate that the payment of interest was made only with the sole object of earning dividend income and as the said interest payment was neither a capital expenditure nor a personal expenditure, the same was allowable deduction under Section 57(iii) of the Act. 25. The AO considered the submissions of the assessee. He observed that the ratio laid down by the Hon'ble Supreme Court in the case of Seth R. Dalmia (supra) was not applicable to the assessee's case. He observed that in the case of Seth R. Dalmia there was an agreement with the bank that in case of default by the assessee, the other party will pay interest to the bank. There was no such agreement in the assessee's case with the sellers of the unit. He observed that there must be a nexus between the character and the expenditure and making and earning of the income as provided under Section 57(iii) of the Act. If the expenditure was not for that purpose or was unrelated to or unconnected with the activity of earning such income, the amount of expenditure was not allowable deduction. For this purpose, the AO relied on the decision of the Hon'ble Madras High Court in the case of K. Mahesh v. CIT (1968) 70 ITR 240 (Mad) which was affirmed by Hon'ble Supreme Court in the case T.S. Krishna v. CIT (1973) 87 ITR 429 (SC). He observed that the expression 'for the purpose of business, or profession' used in s. 37(1) of the Act has wider implication than the expression 'for the purpose of making or earning income' used in s. 57(iii). The purpose contemplated by s. 57(iii) was more specific in character inasmuch as it points to a precise and specific subject of making or earning income. The motive with which the expenditure is incurred is irrelevant under this section. Reliance was placed on the decision Smt. Padmawati Jaikrishna v. Addl. CIT (1987) 166 ITR 176 (SC) and Smt. Virmati Rama Krishna v. CIT (1981) 131 ITR 659 (Guj). The AO also observed that the recipient of the interest are stated to be co-parceners of the assessee HUF. The interest (compensation for delayed payment) was claimed as paid for considerations other than the legitimate consideration. On the basis of these facts, the AO felt that the payment of interest or compensation for delayed payment of purchase consideration of units in respect of the six parties mentioned above was not allowable deduction. .
26. Aggrieved by this finding of the AO, the assessee filed an appeal. It was claimed before the CIT(A) that the interest to Broadway was allowable on the opening balance as such interest was also allowed in the past. It was also claimed that the money was borrowed for business purposes and the interest thereon should be allowed as deduction. Regarding interest payment to Taj Mahal International, it was stated that the assessee had a debit balance with them amounting to Rs, 48.76 lakh and this loan was raised and utilised for making investment in the purchase of units. Therefore, this amount was also allowable. Regarding interest payment to that the assessee had P.N.B., it was stated that the assessee had an overdraft account with the Bank and the interest was paid on such account. It was also claimed that such interest was hitherto allowed and therefore, there was no justification for disallowing the said interest paid to P.N.B. In regard to interest paid to Shri Rohit Goyal and Rahul Goyal, it was claimed that the loan was taken from them for purchase of units. The income from the units had been taxed in the hands of the assessee and therefore it was logical that the interest paid to them should be allowed as deduction. The assesses also filed a copy of the order of the Tribunal in the case of Rohit Goyal for asst. yrs. 1993-94 to 1995-96 wherein it was held that the income from the units did not belong to Shri Rohit Goyal but to the assessee and the transaction between the coparceners and the assessee-HUF was not for avoidance of tax. Regarding interest paid to Shri Ved Prakash Goyal, it was stated that the payment to him was for the purposes of delayed payment of purchase consideration of the units and therefore, was in the nature of interest. As this has a direct link with earning the income, the interest payment to him as well as 5 other parties mentioned above was allowable deduction. Learned counsel further placed reliance on the decision of Hon'ble Delhi Bench of the Tribunal in the case of Ashok Kumar Mehra & Ors. bearing ITA No. 4086/Del/1985 in which the expression 'laid out of expended wholly and exclusively for the purposes of making or earning such income' has been explained. It was also claimed that even the Hon'ble High Court has rejected the reference.
27. The C1T(A) considered the submissions of the appellant. He observed that Section 57(iii) deals with expenditure not being in the nature of capital expenditure or personal expenditure laid out or expended wholly and exclusively for the purposes of making or earning such income- The nexus with income and that of expenditure was incurred wholly and exclusively for earning the income were essential ingredients of the section. He also observed that decision of the Hon'ble Tribunal in the case of Mehra (supra) was not applicable as that case was decided under Section 67(3) which stood omitted w.e.f. 1st April, 1989. He also observed that even the decision in Pratap Singh Balbeer Singh v. CIT (1952) 22 TTR I (All) in the case of Eastern Investment Ltd v. CIT (1951) 20 ITR 1 (SC) was not applicable. He, however, relied on the decision in the case of Rani J. Saial Dew v. C7T (1962) 46 TFR 837 (AP) and in the case of Padmavati Jai Krishna (supra) wherein the proposition was laid down to the effect that only such expenditure which has nexus with the income and which was incurred wholly and exclusively for earning such income was allowable under Section 57(iii). He further observed that when the accounts of S/Shri Ved Prakash, Rohit Prakash and Rahul Prakash are perused, it was noticed that the borrowings were not only for the purpose of purchase of units but for other purposes also. He further observed that such purpose has not been disclosed by the assessee either before the AO or before him. No doubt, money has been credited in these accounts for purchase of units but that by itself does not mean that whole of the interest paid to these persons was allowable deduction. He, therefore, felt that the issue relating to interest payment to the above 3 parties, namely, Ved Parkash Goyal, Rohit Prakash Goyal and Rahul P. Goyal should be examined afresh by the AO. He, therefore, remanded back the interest payment to them to the file of the AO to ascertain the transactions relating to purchase of units, credit of sale price of units and dividends to arrive at the correct figures of monies borrowed which have nexus with the purchase of the units. He also observed that interest, not exceeding the credit of interest in these accounts, will be allowed on such amount at the agreed rate of interest.
28. In regard to the borrowings from Taj Mahal International, the CIT(A) observed that the purpose of loan from this concern was to meet the existing debt from Shri Ved P. Goyal. Therefore, it cannot be said that the loan was taken for purchase of units and the liability of interest was incurred for earning dividends from units because the units had already been purchased prior to the date of taking the loan. Regarding interest payment to P.N.B., the CIT(A) observed that the assessee had purchased certain units. It also received these units along with transfer deeds. These were not lodged with U.T.I, for change of name. When the appellant-HUF approached the bank for the loan it was pointed out that the units did not stand in the name of the HUF and, therefore, the loan cannot be given to the HUF. However, the individual members of the HUF pledged the units in their names and obtained the loan from the bank on behalf of the HUF. The CIT(A) held that the appellant-HUF had no stand insofar as taking the loan was concerned. The brevity of contract is between the bank and the individual members of the HUF and despite the loan was sanctioned in their names and not in the name of the appellant-HUF. Interest was charged from them which was debited to the HUF's account and, of course, the loan was used to discharge the existing debit due to these persons. The CIT(A), therefore, held that the condition of "solely and exclusively" and nexus "with the income" are not present with regard to interest paid to the bank. Accordingly the interest paid to Bank also was not allowable deduction under Section 57(iii) of the Act. Similarly in respect of interest paid to Broadway, the CIT(A) held that the loan obtained for purchase of car had no nexus whatsoever with earning of dividend income and accordingly, the same was not allowable deduction. In nutshell, the CIT(A) set aside the issue of interest payment to Shri Ved Prakash Goyai, Shri Rohit Prakash Goyal and Shri Rahul Prakash Goyal and restored it back to the file of the AO for recomputation and disallowed the deduction of interest payable to Punjab National Bank, M/s Tajmahal International and M/s Broadway.
28.1. During the course of arguments before us the learned counsel stated that the issue of payment of interest could be divided into two parts. One, the interest payment/compensation paid to Shri V.P. Goyal, Shri Rohit Goyal and Shri Rahul Goyal from whom the units were purchased in earlier years as well as in this year and the purchase consideration was not paid to them. The second category is the payment of interest to the other three parties. It was stated that the units were purchased by the individual members of the H.U.F. and these were transferred in the name of the HUF. The Department's view was that the members were the owners of the units as they held them in their individual capacity. The AO, accordingly, taxed the dividend income on the units in the individual hands and not in the hands of the appellant-HUF. The AO also held that the transfer of units by the individual members to the appellant-HUF was sham. However, the Hon'ble Tribunal vide its order dt. 6th May, 1998 in ITA Nos. 977-979/Del/1997 in the case of Shri Rohit Prakash Goyal held that the sale of units by the members of the appellant-HUF to the HUF was not sham but genuine even though the units were not transferred in the name of the HUF. The learned counsel stated that in view of the order of the Hon'ble Tribunal mentioned above, the HUF was the owner of the units purchased on credit and accordingly, the dividend income was offered to tax in its hands. As the appellant-HUF had purchased the units from its members on credit, the interest/compensation was payable to them. Thus, the only question to be decided by the Hon'ble Tribunal was whether the interest/compensation payment to members of the HUF was allowable deduction under Section 57(iii) or not. While relying on the provisions of Section 57(iii) the learned counsel stated that any expenditure which is wholly and exclusively incurred or expended for the purposes of earning or making income was allowable expenditure. In the instant case the dividend income was earned on those units which were purchased from the members on credit and accordingly the interest on such credits was rightly claimed as deduction. It was, therefore, argued that interest paid to all the three members has direct nexus with earning income and, therefore, the same has to be allowed as deduction under Section 57(iii) of the Act.
28.2. It was also argued that when the learned CIT(A) considered this issue, he held that there was direct nexus between the expenditure claimed by the appellant and income which was taxable under the head "Income from other sources". However, the CIT(A) set aside this issue and restored it back to the file of the AO to compute the actual expenditure which was relatable to earning the income. It was stated that when all the details including the copy of the accounts of these members was on record of the CIT(A), he should have decided and computed the amount of deduction rather than setting aside for fresh calculation. In this context, it was also stated that the CIT(A) himself was satisfied that the units were purchased on credit and, therefore, the interest/compensation payment on such credits was allowable deduction. It was, therefore, argued that the Hon'ble Tribunal may compute the deduction as per law and facts available on record.
28.3. Regarding interest payment to the other three parties, the learned counsel stated that it was true that if the expenditure incurred by the appellant-HUF had direct nexus with earning/making the income, such expenditure was allowable deduction. It was stated that the appellant had borrowed a sum of Rs. 1,36,077 in the asst. yr. 1994-95 from M/s Broadway. The interest payable on such amount in that year aggregated Rs. 14,288 which was also allowed as deduction by the AO himself. In this year the opening credit balance was Rs. 1,50,365 and the interest on such opening credit balance amounted to Rs. 27,065. It was also stated that as the AO himself had allowed deduction of the interest on such credit balance in the earlier year when the loan was taken, it is illogical to disallow the same in the year under consideration.
28.4. Regarding interest payment to M/s Tajmahal International, the learned counsel stated that the appellant had raised a loan of Rs. 46 lacs from this concern in the asst. yr. 1994-95. The said loan was utilised for purchase of units on which dividend has been earned. In this year the interest payable on such loan amounted to Rs. 2.76 lacs. This amount of interest was claimed as deduction in the asst. yr. 1994-95 and the AO himself was pleased to allow the same. The opening credit balance during the year was 48.76 lacs, which included the amount of Rs. 46 lacs and the interest at Rs. 2.76 lacs. On such opening credit balance the appellant has calculated the interest payable at Rs. 7,31,400 during the year and claimed deduction of the same. It was argued that as the dividend income has been earned on these units, which was purchased out of loan borrowed from M/s Tajmahal International, there is direct nexus of earning the income and expenses incurred for earning/making such income.
28.5. The learned counsel also stated that similar was the position in respect of interest paid to Punjab National Bank. The appellant had an overdraft account with the bank- On such overdraft bank had charged interest.
Even in the earlier year the bank had charged interest on such overdraft account and the AO himself had allowed deduction for such interest. It was argued that the facts during the year are similar and, therefore, the CIT(A) was not justified in confirming the disallowance of interest paid to three parties mentioned herein above. On the basis of these facts the learned counsel stated that the interest paid to all the six parties mentioned above, was allowable deduction.
28.6. We have considered the arguments of the learned counsel as well as the learned Departmental Representative. The appellant has earned certain dividend income on the units purchased by it, which has been taxed under the head "Income from other sources". When the AO examined the issue, he was of the opinion that the dividend income has been earned on the units transferred by the members of the appellant-HUF to the appellant-HUF. He held that such transfer of the units to the appellant as sham. However, he brought to tax the dividend income on such units in the hands of the appellant-HUF on substantive basis and also in the hands of the respective members on substantive basis. But, the Tribunal vide its order mentioned earlier, held such transfer as valid. The effect of such an order is that the dividend income on the units was taxable in the hands of the appellant on substantive basis. It is against this dividend income that the appellant has claimed deduction of interest, which, in its opinion, has direct nexus with the earning of such dividend income. We feel that the deduction of interest/compensation claimed by the appellant could be classified into two categories. The first is the interest payment/compensation paid to three members of the appellant-HUF, namely, Shri Rohit P. Goyal, Shri Rahul P. Goyal and Shri V.P. Goyal from whom the units were purchased on credit. The second category of the creditors are the other three parties, namely, M/s Tajmahal International, M/s Broadway and Punjab National Bank from whom the loans were obtained in the earlier years and the interest payment to them was allowed deduction by the AO himself. These loans are continuing in the year under consideration. When the issue was considered by the CIT(A) he set aside the issue for fresh calculation regarding interest payable to the members of the appellant-HUF falling in the first category whereas he has disallowed the deduction of interest paid to the three parties mentioned in the second category. We see that the income by way of dividend has been taxed under the head "Income from other sources" and, therefore, the deduction of interest will have to be allowed which was permissible under Section 57(iii) of the Act.
28.7. The provisions of Section 57(iii) read as under:
"57. The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely :
(i) xxxxx
(ii) xxxxx
(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income."
Thus the case of the appellant has to be considered within the framework of the provisions laid down under Section 57(iii) mentioned above. We have, therefore, to examine the nature of these expenses party-wise. We find that the appellant had claimed deduction of interest payment/compensation payment to the three members of the HUF mentioned earlier.
As this was disallowed, the appeal was filed. The CIT(A) found some merit in the claim of the appellant and accordingly set aside the issue for calculation of deduction as per provisions of Section 57(iii). The learned counsel had submitted during the course of the hearing that when the entire documents were on record of the CIT(A), there was no justification for setting aside the issue for recomputation of deduction. He should have quantified the deduction on merits. We have, therefore, given our careful thought to the submissions of the learned counsel and find ourselves in conformity with him that the issue should be set aside only when it was not possible to ascertain the correct figures of allowance or disallowance. In the instant case the entire documents were on the record of the AO and no fresh documents are required to recompute the deduction. The CIT(A) should have, therefore, computed the deduction himself. We have, therefore, examined the issue of interest payment/compensation paid to the three members of the HUF on merits.
28.8. From the documents on record, we find that the appellant purchased UTI units on credit from Shri Rahul Goyal on 16th July, 1992, for a consideration of Rs. 55.60 lakhs falling in the asst. yr. 1993-94. No interest was provided by the appellant on this credit amount. Thus as on 1st April, 1993, the entire amount of Rs. 55.60 lakhs was brought forward. During the accounting year relevant to the asst. yr. 1994-95 the appellant again made the purchases of units on credit on 30th July, 1993 aggregating Rs. 9.06 lakhs. Shri Rahul Goyal received the dividend of Rs, 10.40 lakhs on 21st Aug., 1993. In other words, the credit purchases of units during the asst. yr. 1994-95 were only set off against the dividend received by Shri Rahul Goyal on the units, though subsequently Shri Rahul's account has been further credited to the extent of Rs. 20.48 lakhs for which the nature of such credit has not been explained. There are some small debits in his accounts which have not been explained. In that year the appellant provided for interest payable to Shri Rahul Goyal. After considering the brought forward credits and interest provided for that year, a sum of Rs. 77,13,953 has been carried forward to the next year, i.e., as on 1st April, 1994 which falls in the asst. yr. 1995-96. During this year the appellant further purchased units on credit from Shri Rahul Goyal on 12th July, 1994 aggregating Rs. 74.10 lakhs. Against such credit purchases the account of Shri Rahul Goyal was credited on 15th July, 1994 to the extent to Rs. 16.12 lakhs representing dividend received by him on behalf of the appellant on the units purchased on credits. Shri Rahul Goyat's account is further debited to the extent of Rs. 53.85 lakhs on 16th March, 1995. After a perusal of Shri Rahul's account it will be clear that the appellant made credit purchases worth Rs. 74.10 lakhs and adjusted it. The dividend received on these units was at Rs. 16,12 lakhs. Thus, the appellant was debtor to Shri Rahul Goyal for 9 months during the year for a sum of Rs. 57.98 lakhs and Rs. 55.60 lakhs for whole of the year aggregating Rs. 133.58 lakhs upto 15th March, 1995. For facility of perusal a copy of the account of Shri Rahul Goyal for the above three assessment years appearing in the books of accounts of the appellant is reproduced below :
M/S SHANKER LAL VED PEAKASH COPY OF ACCOUNT OF SHRI. RAHUL PRAKASH GOYAL Asst yr, 19S3-94 Date Particulars Debit Credit Rs.
Balance Rs.
16-7-92 By Purchase of US'64 55,60.000.00 Cr. 55.60.000.00 Asst yr. 1994-95 Date Particulars Debit Us.
Credit Rs.
Balance Rs.
1-4-93 B/F d65,60,000.00 Cr. 55,60.000.00 12-6-93 By Amount 5,000.00 20-7-93 By Amount 5,000.00 30-7-93 By Purchase of US'64 9,06,000.00 21-8-93 To Dividend 10,40,000.00 27-8-93 By Amount 20,48,000.00 3-11-93 To Amount 5,000.00 4-11-93 To Amount 5,000.00 31-3-94 By Interest 2,39,953.30 10,50,000.00 87,63,953.30 Cr. 77,13,953.30 Asst. yr. 1995-96 Date Particulars Debit Credit Balance Rs.
Rs.
Rs.
1-4-94 B/F 77,13,953.30 Cr. 77,13,953.30 12-7-94 By Purchase of US'64 74,10.000.00 16-7-94 To Dividend 16,12,000.00 16-3-95 To Amount 63,85,000.00 31-3-95 By Interest 8,49,976.43 69,97,000.00 1.59,73,929.73 Cr. 89,76,929.73 A perusal of above accounts would show that the appellant has not provided for interest on the amount of Rs. 55.60 lakhs in the asst, yr. 1993-94 when for the first time credit purchase of units was made from Shri Rahul Goyal. But it does not mean that when subsequently the appellant provided for interest in the subsequent years deduction of interest can be denied on that ground. We, therefore, hold that the appellant is entitled to the deduction of interest on the credit amount of Rs. 55.60 lakhs (which is brought forward from earlier year) for whole of the year and on Rs. 57.98 lakhs for 9 months i.e. from July, 1994 to March, 1995. We feel that even if the interest is calculated at the rate of 10 per cent, the interest which is allowable on such credit balance will be much more than the interest claimed by the appellant. Actually on specific query by the Bench, it was explained that though the interest payable on the credit balances of various members of the HUF was much more but the deduction of interest has been claimed to the extent the bank had charged interest from the respective members. We, therefore, direct the AO to allow deduction of Rs. 8.50 lakhs payable to Shri Rahul Goyal on his credit balance as is claimed by the appellant. Accordingly, the disallowance of Rs. 8.50 lakhs confirmed by the CIT(A) is deleted.
28.9. As regards interest payable to Shri Rohit Prakash Goyal, the position of his credit balance in the asst. yr. 1993-94 was almost similar to the account of Shri Rahul P. Goyal mentioned above. Even in asst. yr. 1994-95 the nature of credit and debit entries were similar to the nature of account of Shri Rahul P. Goyal mentioned above. Coming to the asst. yr. 1995-96 we find almost similar entries like that of Shri Rahul P. Goyal. The brought forward credit balance of Shri Rohit Goyal as on 1st April, 1994, therefore, amounted to Rs. 55.60 lakhs. In the asst, yr. 1995-96 (under consideration), the appellant made credit purchases of units from Shri Rohit Goyal on 12th July, 1994, aggregating 74.10 lakhs. Shri Goyal received the dividend of Rs. 16.12 lakhs on behalf of the appellant on such units. There are certain other credit and debit entries, the nature of which was not explained. Thus the appellant was debtor to Shri Rohit P. Goyal for a sum of Rs. 55.60 lakhs for the whole year and Rs. 57.98 lakhs for a period of nine months falling in this assessment year. For perusal a copy of the account of Shri Rohit Goyal appearing in the books of accounts of the appellant is given below :
M/S SHANKER LAL VED PRAKASH COPY OF ACCOUNT OF SHRI ROHIT PRAKASH GOYAL Asst. yi. 1993-94 Date Particu/ars Debit Credit Balance Rs. fis.
16-7-92 By Purchase of US'64 55,60,000.00 Cr. 55,60,000.00 Asst. yr. 1994-95 Date Particulars Debit Rs.
Credit Rs.
Balance Rs.
1-4-93 B/F 55,60,000.00 Cr. 55,60,000.00 26-7-93 By Amount 5,000.00 ...7-93 By Amount 5,000.00 30-7-93 By Purchase of US'64 9.06,000.00 21-8-93 To Dividend 10,40,000.00 27-8-93 By Amount 20,48,000.00 17-9-93 To Amount 2,000.00 30-10-93 To Amount 5,000.00 4-3-94 To Amount 3,000.00 31-3-94 By Interest 2,39.330.66 10,60,000.00 87,63,330.66 Cr.
77,13,330.66 Asst. yr. 1995-96 Date Particulars Debit Credit Balance Rs.
Rs.
Rs.
1-4-94 B/F 77,13,330.66 Cr.
77,13,330.66 6-4-94 By Amount 3.000.00 9-4-94 By Amount 5,000.00 30-4-94 By Amount 6,000.00 12-7-94 By Purchase of US'64 74,10,000.00 16-7-94 To Dividend 16,12,000.00 28-9-94 To Amount 6,000.00 22-12-94 By Amount 32,000.00 23-12-94 By Amount 72,000.00 ...2-95 By Amount 20,000.00 24-2-95 By Amount 26,000.00 7-3-95 By Amount 20,000.00 15-3-95 By Amount 3,75,000.00 16-3-95 To Amount 53,85,000.00 29-3-95 To Amount 26,92,600.00 30-3-95 By Amount 14,55,000.00 31-3-95 By Amount 4,00,000.00 31-3-95 By Interest 9,11,084.24 96,94,500.00 1,84,46,414.90 Cr.
87,61,914.00 28.10. We, therefore, hold that the appellant is entitled to the deduction of interest on the credit amount of Rs. 55.60 lakhs (brought forward from earlier year) for whole year and on Rs. 57.98 lakhs for 9 months i.e. from July, 1994 to March, 1995. Accordingly, we direct the AO to allow deduction of Rs. 9,11,084.24 payable to Shri Rohit P. Goyal on his credit balance as is claimed by the appellant. Thus, the disallowance of interest confirmed by the CIT(A) is deleted.
28.11. As regards interest payable to Shri Ved Prakash Goyal, we find that in the asst. yr. 1993-94 the credit purchase of units from Shri Goyal was made on 1st July, 1992, for a consideration of Rs. 1.11 crores. No interest was provided by the appellant on such credit purchases. In the subsequent asst. yr. 1994-95 the appellant made further credit purchases of units from Shri Ved Prakash Goyal for a sum of Rs. 19.63 lakhs. However, Shri Goyal received the dividend of Rs, 20-80 lakhs on these units. There are other debits and credit entries in this account, the nature of which has not been explained. During the year under consideration there is opening credit balance of about 1.12 crores on 1st April, 1994 including the credit purchase of units in asst. yr. 1993-94. The appellant made further purchases of units on credits from Shri Ved Prakash Goyal on 12th July, 1994 for a consideration of Rs. 1,63,80,000. Against such credits Shri Goyal received a dividend of about Rs. 32.90 lakhs leaving the credit balance at Rs. 1,30,90,000 for nine months. There are some other debit and credit entries, the nature of which has not been explained. Thus, the other entries cannot be said to be relatable to earning or making the dividend income. The appellant is, therefore, entitled to the deduction of interest on the credit balance of Rs. 1.11 crores for whole year and on Rs. 1.31 crores for 9 months. For perusal, the copy of account of Shri V.P. Goyal appearing in the books of accounts of the appellant is reproduced below :
M/S SHANKER LAL VED PRAKASHCOPY OF ACCOUNT OF SHRI VED PHAKASH GOYALAsst. yr. 1993-94 Date Particulars Debit Credit Balance Rs.
Rs.
Rs.
1-4-92 B/F 1,66,500.00 Dr. 1,66,500.00 6-4-92 To Deb. Interest Tata Yodogawa 787.50 12-5-92 By Cheque No. 247450 50.000.00 2-6-92 To Cheque No. 591756 75,000.00 4-6-92 By Cheque No. 249729 75,000.00 30-6-92 To Dividend US'64 5.000.00 1-7-92 By Purchase of 8 Lac Units US'64 1,11,20,000.00 2-7-92 To Deb. Interest 75.00 3-7-92 To Dividend US'64 500.00 6-7-92 To Deb. Interest Tata Yodogawa 187.50 8-7-92 By Cheque No. 263737 1,16,500.00 10-7-92 To Deb. Interest 232.00 11-7-92 To Deb. Redemption 3,200.00 20-7-92 By Cheque No. 253744 1,43,500.00 29-7-92 By Cheque No. 255207 17,000.00 22-8-92 By Cheque No. 255218 52,000.00 21-9-92 To Dividend Tata Yodogawa 875.00 3-10-92 To Deb. Interest Tata Yodogawa 262.50 7-10-92 To Dividend DCM Sh. Ram Conso 2,961.00 21-10-92 To Dividend DCM 2,961.00 Shriram Ind.
26-10-92 By Cheque No. 255560 40,600.00 4-11-92 To Dividend 500.00 9-11-92 To Dividend 4,442.00 9-11-92 To Dividend 366.00 18-12-92 By Cheque No. 255571 32,000.00 26-12-92 By Cheque No. 255574 42,800.00 28-12-92 By Pay orders 970328, 22.662.00 970324 22-1-93 To Dividend 3,702.00 26-3-93 By Cheque No. 255578 2,10,000.00 31-3-93 To Cheque No. 591776 6,000.00 2,73,551.50 1,19,21,952.00 Cr.
1,16,48,400.50 M/S SHANKER LAL VED PRAKASH COPY OF ACCOUNT OF SHRI VED PRAKASH GOYAL Asst. yr.
1994-95 Data Particulars Dabit Credit Balance Rs.
Rs.
Rs Rs.
1-4-93 B/F 1,16,48,400.50 Dr. 1,16,48,400.50 3-4-93 To Deb. Interest 262.50 3-4-93 By Amount 32,900.00 15-4-93 By Telephone bill 13,114.00 paid 23-4-93 By Amount 3000.00 23-4-93 To Deb. Interest 536.89 30-4-93 By Amount 2.000.00 7-5-93 By Amount 42.000.00 7-6-93 By Amount 7.000.00 15-6-93 By Telephone Bill 14.157.00 2-7-93 By Amount 8.200.00 29-7-93 To Dividend 2,340.00 30-7-93 To Dividend 5,720.00 30-7-93 By Purchase of US'64 19,63,000.00 2-8-93 To Dividend 1,560.00 3-8-93 To Deb. Interest 2,139.12 7-8-93 By Amount 15,000.00 14-8-93 To Dividend 2,961.10 23-8-93 By Telephone Bill 13,382.00 23-8-93 To Dividend 20,80,000.00 26-8-93 To Dividend 3,702.00 27-8-93 By Amount 42,43,200.00 3-9-93 By Amount 16,52,000.00 14-9-93 To Amount 5,000.00 14-9-93 By Amount 35,000.00 15-9-93 By Amount 5,00.000.00 22-9-93 To Dividend 3,702.00 24-9-93 By Amount 4,000.00 27-9-93 To Dividend 237.50 27-9-93 To Dividend 1,425.00 1-10-93 To Deb. Interest 262.50 6-10-93 To Deb. Interest 2.097.47 6-10-93 To Amount 5,000.00 B/F 21,31,945.98 2.01,96,353.50 1.80,64,407.52 12-10-93 By Telephone Bill 14,911.00 12-10-93 By Amount 5,000,00 16-10-93 By Amount 10,000.00 29-10-93 By Amount 10.000.00 2-11-93.
To Dividend 50,440.00 3-11-93 By Amount 10,000.00 4-11-93 To Dividend 5,922.00 4-11-93 By Amount 50,000.00 5-11-93 To Amount 5,000.00 9-11-93 To Amount 5,200.00 17-11-93 To Dividend 500.00 24-11-93 By Amount 16,000.00 30-11-93 To Deb. Interest 4,699.23 2-12-93 By Amount 13.000.00 7-12-93 By Amount 25,000.00 31-12-93 To Amount 20,00.000.00 1-1-94 To Amount 20,00,000.00 3-1-94 To Amount 6,00,000.00 6-1-94 To Dividend 2.221.00 21-1-94 By Amount 20,000.00 3-2-94 By Amount 58,000.00 5-2-94 By Amount 22,000.00 7-2-94 By Amount 15,000.00 8-2-94 By Amount 10,000.00 18-2-94 By Amount 20,000.00 22-02-94 By Amount 7,000.00 2-3-94 By Amount 1,71,000.00 3-3-94 By Amount 92,000.00 4-3-94 To Amount 22,00,000,00 8-3-94 By Amount 12,000.00 10-3-94 To Amount 15,75,000.00 24-3-94 By Amount 1,26,000.00 31-3-94 By Amount 1,24,000.00 31-3-94 By Interest 4,21,044.00 .
1,05,80,828.21 2,17,76,308.60 Cr 1,11.95,480.29 M/S SHANKER LAL VED PRAKASH COPY OF ACCOUNT OF SHRI VED PRAKASH GOYAL Asst yr. 1995-96 Date Particulars Debit. Rs.
Credit Rs Balance Rs.
1-4-93 B/F 1,11,95,480.29 1,11,95,480.29 5-4-94 To Deb. Interest 262.50 9-4-94 To Deb. Interest 1,399.75 9-4-94 To Ch, No. 42693 8 62.384.00 15-4-94 By Amount 25,000.00 22-4-94 By Amount 8,000.00 16-5-94 By Amount 11,500.00 23-5-94 By Amount 60,000.00 23-5-94 By Amount 2,00,000.00 7-6-94 By Amount 10,000.00 7-6-94 To Deb. Interest 440.35 18-6-94 By Amount 50,000.00 2-7-94 By Amount 1,90.000.00 5-7-94 To Deb. Interest 1,820.23 8-7-94 By Amount 1,000.00 12-7-94 By purchase of 1,63,80.000.00 US'64 16-7-94 To Dividend 32,89,520.00 28-7-94 To Dividend 52,000.00 10-8-94 By Amount 6,25,000.00 11-8-94 By Amount 25,000.00 26-8-94 To Dividend 5,685.20 30-8-94 By Amount 50.000.00 7-9-94 By Amount 35,000.00 15-9-94 By Amount 35,000.00 17-9-94 By Amount 5,000.00 21-9-94 To Dividend 9,855.00 23-9-94 By Amount 30,000.00 27-9-94 By Amount 3,00.000.00 27-9-94 To Amount 8,000.00 27-9-94 To Dividend 1,926.00 4-10-94 To Deb. Interest 187.50 5-10-94 To Deb. Interest 238.00 8-10-94 To Deb. Interest 76.00 13-10-94 To Dividend 4,579.00 8-12-94 To Dividend 11,295.75 8-12-94 By Amount 7,80.000.00 C/F 34,49,667.28 9,00,15,980.29 Cr.
2,65,66,313.01 B/P 34,49,667.28 9,00,15,980.29 Cr.
2,66,66.313.01 26-12-94 To Dividend 440.28 29-12-94 To Dividend 2,976.00 30-12-94 To Amount 7,00,000.00 31-12-94 By Amount 1.18,992.00 4-1-95 To Amount 17.000.00 6-1-96 To Interest 2,136.00 6-1-95 By Amount 5.000.00 10-1-95 By Amount 5,000.00 13-1-95 To Amount 1,04,056.35 10-2-95 To Dividend 5,645.00 24-2-95 To Deb. Interest 661.00 8-3-95 To Amount 5,000.00 16-3-95 To Amount 1,07,70,000.00 18-3-95 By Amount 32.56,000.00 31-3-95 By Interest 17,56,162.23 1.50.57.580.91 3.51.57.134.52 Cr.
2.00.99.553.61 We, therefore, hold that the appellant is entitled to the deduction of interest on the credit balance of Rs. 1.11 crores for whole year and on Rs. 1.31 crores for nine months. Even if the interest at the rate of 10 per cent is calculated on such credit balance, the calculation of interest will be much more than the deduction claimed by the appellant. We, therefore, direct the AO to allow the deduction of interest amounting to Rs. 17.56 lakhs on the credit balances of Shri V.P. Goyal. Thus, the disallowance of interest to Shri Ved Prakash Goyal confirmed by the CIT(A) is deleted.
28.12. Now we will take up the issue of interest payment to the second category of creditors. The appellant .has taken the loan of Rs. 46 lakhs from M/s Taj Mahal International in the asst. yr. 1994-95. On such loan the appellant has claimed deduction of interest amounting to Rs. 2.76 lakhs. Such deduction was also allowed to the appellant by the AO himself in that year by holding that this expenditure was incurred for earning the dividend income. In the assessment year in question, the same amount of Rs. 48.76 lakhs (principal plus interest) has been brought forward. During this year in the month of March the account of M/s Taj Mahal International has been credited to the extent of Rs. 50,000 on 20th March, 1995 and Rs. 9.53 lakhs on 31st March, 1995. In other words, the entire amount of Rs. 48.76 lakhs continued to be credited in the name of M/s Taj Mahal International for almost full year. The appellant has claimed deduction of interest on such credit balance. As in the earlier year, when the loan was taken the AO himself has allowed deduction of interest and there is no change in the year under consideration. We hold that the appellant is entitled to the deduction of Rs. 7,31,400 on account of interest payable to Taj Mahal International. We also feel that the rate of interest paid on such credit balance was reasonable. For perusal a copy of the accounts of M/s Taj Mahal International appearing in the books of accounts of the appellant is reproduced below:
"COPY OF ACCOUNT OF M/S TAJ MAHAI.
INTERNATIONAL Assl.
yr. 1994-95 Date Particulars B/F Debit Rs.
Credit Rs.
balance Rs.Nil 31-12-93 By Amount 20.00,000.00 01-01-94 By Amount 20.00.00000 03-01-94 By Amount 6.00.000.00 31-03-94 By Interest 2.76.000.00 48.70.000 00 Cr 48.70.00000 Asst yr 1995-96 Datef Particulars B/F Debit fe Credit Ks.
balance B/F 48.76.000.00 Cr 48.76.000 00 7.0-3-95 To Amount 50.00000 31-3-95 To Amount 9.53.00000 31-3-95 By Interest 7.31.40000 10.03.000 00 56.07.400 00 Cr 46.04.40000 28.13. We are, therefore, of opinion that the disallowance of interest paid to M/s Taj Mahal International made by the AO and confirmed by the GIT(A) is not justified and the same is deleted.
28.14 Regarding interest payable to M/s Broadway, we find that the appellant took loan of Rs. 1,36,077 on 1st Sept., 1993 falling in the asst. yr. 1994-95. This amount was utilised for purchase of car. The principal amount as well as the interest due on such loan had been brought forward to the asst. yr. 1995-96. The appellant had claimed deduction of interest amounting to Rs. 27,065 on such amount. As mentioned earlier, the deduction of interest under Section 57(iii) will be allowable to the extent these were incurred for earning or making the income chargeable to tax under the head "Income from other sources", As the amount of loan has not been invested in the assets which has generated any income chargeable to tax, under the head "Income from other sources, we hold that the appellant is not entitled to deduction of interest on such loan. Such deduction is also not allowable because the loan amount has been invested in the purchase of capital asset and, therefore, the same cannot be treated as revenue expenditure. We, accordingly, hold that the CIT(A) was justified in confirming said disallowance of Rs. 27,065 though for different reasons. The disallowance of Rs. 27,065 is, therefore, confirmed.
28.15 As regards interest payable to Punjab National Bank, we find that the appellant has been granted overdraft facility by the bank from time to time. In the preceding year the appellant had withdrawn amount from this overdraft account and repaid the loan taken for the purchase consideration of units which was purchased on credit. The appellant claimed deduction of interest on such overdraft account which was allowed deduction by the AO himself. During the year under consideration the facts are the same. Whether interest paid on loans taken to repay the loan was allowable deduction under Section 57(iii) of the Act or not, was considered by Delhi Bench of the Tribunal in the case of Smt. Anita Mehra and Smt. Lata Rani Mehra (I.T.A. Nos. 4085/Del/1985 and 4087/Del./1985 respectively). The Tribunal vide its order dt. 22nd July, 1987 held that the interest on loan taken to repay the loan was allowable deduction. In view of the order of the jurisdictional Tribunal, we hold that interest payable to Punjab National Bank was allowable deduction as the same was expended wholly and exclusively for the purposes of earning or making the income as required under Section 57(iii) of the Act. The AO is accordingly, directed to allow deduction of Rs. 6,54,184 representing interest payable to Punjab National Bank.
28.16. In the result, the addition of Rs. 6,54,184 confirmed by the CIT(A) is deleted.
28.17. This ground of appeal is decided with the above directions.
29. Ground No. 5 relates to the charge of interest under Section 234B of the Act. During the course of arguments the learned counsel stated that interest under Sections 234A, 234B and 234C can only be charged when there is a specific direction by the AO to charge the interest under a particular section. While relying on the decision of the Hon'ble Patna High Court in Uday Mistanna Bhandar & Complex v. Tej Kumari Devi (1996) 222 ITR 44 (Pat) the learned counsel stated that it is obligatory on the part of the AO to mention the particular section or sub-section under which the interest was to be charged. In case there is a general direction like "charge interest" or "charge interest as per rules" was not sufficient for levying the interest under Sections 234A, 234B and 234C of the Act. As in the instant case, the AO has given only general direction for charging the interest, in view of Hon'ble Patna High Court decision in the case mentioned above, the charge of interest by the AO was illegal and serves to be deleted. 29.1. We have considered the submissions of the learned counsel. We are of the opinion that the charge of interest under Sections 234A, 234B and 234C is only consequential and accordingly, we direct the AO to recalculate the interest under the above sections on the basis of income determined as per our above order.
30. In the result, the appeal is partly allowed.