2002 (7) TMI 3 - HC - Income Tax

Interest borrowed capital/debit notes - Whether Tribunal was right in law in holding that the assessee was entitled to deduction of interest for 12 months for the calendar year 1983 when the debit note was received after the close of the accounting year of the assessee? - Revenue has not been able to dispute the fact that by making payment of interest the assessee-company does not stand to derive any advantage considering the assessment record of the assessee-company, which has been taken note of by the Tribunal. Similarly, that there is actual payment and Jyoti Limited, has paid tax on the interest received by Jyoti Limited is also not disputed. - for the reasons stated hereinbefore, it is not possible to accept any of the contentions raised on behalf of the Revenue there being no infirmity in the order of the Tribunal.

Issues:
1. Deduction of interest for the calendar year 1983.
2. Disallowance of interest payment by the Assessing Officer.
3. Confirmation of disallowance by the Commissioner of Income-tax (Appeals).
4. Upholding of the claim by the Tribunal.
5. Claim for interest payment for specific periods.
6. Dispute regarding the resolution passed by Jyoti Limited.
7. Acceptance of interest payment by the assessee.
8. Rejection of Revenue's contentions.

Analysis:

1. The primary issue in this case was whether the assessee was entitled to deduction of interest for the calendar year 1983. The Tribunal upheld the claim made by the assessee, emphasizing that the interest payment was valid and necessary despite the assessee continuously incurring losses. The Tribunal ruled out any tax planning motive and allowed the deduction based on the factual record.

2. The Assessing Officer initially disallowed the claim for interest payment, citing reasons such as no interest being charged prior to the calendar year and the absence of a written agreement obligating the assessee to pay interest. The Assessing Officer held that the interest payment was not in the normal course of business. This decision led to the appeal by the assessee.

3. The Commissioner of Income-tax (Appeals) confirmed the disallowance of the interest payment, further supporting the Assessing Officer's decision. The Commissioner's order dated February 8, 1989, upheld the disallowance of Rs. 11,49,206, leading the assessee to pursue a second appeal before the Tribunal.

4. The Tribunal, in its order dated March 1, 1993, upheld the claim for interest payment by the assessee. It noted that the substantial amount payable to Jyoti Limited indicated a valid interest payment obligation. The Tribunal highlighted that even though interest was not charged for specific periods, the overall interest payment was allowable.

5. The Tribunal specifically addressed the claim for interest payment for the period from July 1, 1982, to December 31, 1983. It concluded that interest attributable to the period between July 1, 1982, and December 31, 1982, was not allowable as it did not pertain to the previous year relevant to the assessment year of the assessee-company.

6. A significant dispute arose regarding the resolution passed by Jyoti Limited on November 18, 1983, regarding interest payment. The Revenue argued that Jyoti Limited could not unilaterally impose interest without a bilateral agreement. However, the court rejected this argument, emphasizing the relevance of the accounting period and the actions taken within it.

7. The acceptance of interest payment by the assessee was a crucial point of contention. The court clarified that the entry made by the assessee regarding interest payment, even after receiving the debit note, was valid and within the relevant accounting period. The court rejected the Revenue's argument that there was no concluded contract due to the timing of acceptance.

8. Ultimately, the court rejected all contentions raised by the Revenue, noting that there was no infirmity in the Tribunal's order. The court ruled in favor of the assessee, allowing the deduction of interest payment for the calendar year 1983. The reference was answered in the affirmative, and the case was disposed of without costs.

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