2002 (9) TMI 83 - HC - Income Tax

Interest On Borrowed Capital - We find that both the Commissioner of Income-tax (Appeals) and the Tribunal have noticed that by mutual consent, the parties had carried out certain changes in the original agreement and the interest was paid by the assessee in terms of the changed terms. The Assessing Officer had not doubted the genuineness of the subsequent arrangement but had rejected the assessee s claim only on the short ground that in view of the aforenoted restriction against change in terms, the original agreement could not be ignored. The Tribunal has come to the conclusion that there was no element of collusiveness in the parties agreeing to vary the terms of the initial agreement. We are of the view that this conclusion is essentially factual. The issue raised by the Revenue cannot be said to involve any question of law, much less a substantial question of law. It cannot be said that the finding of the Tribunal is without any evidence or material or is perverse

Summary

Issues:
- Disallowance of interest payment as business expenditure
- Validity of changes made in the original agreement
- Interpretation of terms of the agreement
- Jurisdiction of the Tribunal in considering changes to the agreement

Disallowance of Interest Payment:
During the assessment proceedings for the year 1984-85, the Assessing Officer disallowed the interest payment of Rs. 10,25,953 to Jolly Bawa and Associates, stating that the agreement between the parties did not require the assessee to pay any interest. The Commissioner of Income-tax (Appeals) later deleted the disallowance, emphasizing that parties could amend the agreement by mutual consent. The Tribunal upheld this decision, noting that changes were made in the agreement with mutual consent, and there was no evidence of collusiveness. The court found the Tribunal's conclusion factual and dismissed the appeal by the Revenue.

Validity of Changes in Agreement:
The Revenue contended that parties are bound by the terms agreed upon in writing and argued that ignoring a vital term of the agreement was a substantial question of law. However, both the Commissioner of Income-tax (Appeals) and the Tribunal acknowledged the changes made by mutual consent in the original agreement. The court held that the Tribunal's finding was not without evidence or material and that the Act does not govern rights between parties. The court concluded that the issue did not involve a question of law, let alone a substantial one, and dismissed the appeal.

Interpretation of Agreement Terms:
The Commissioner of Income-tax (Appeals) highlighted that the original agreement could be amended by mutual consent, and the parties were not restricted from making changes. The Tribunal noted the movement of loan amounts and changes in the agreement, concluding that the changes were made with mutual consent. The court agreed with this interpretation and found no element of collusiveness in varying the agreement terms.

Jurisdiction of the Tribunal:
The Tribunal's jurisdiction in considering changes to the agreement was questioned by the Revenue, arguing that the original terms should not be ignored. However, the court upheld the Tribunal's decision, emphasizing that changes made by mutual consent were valid. The court found the Tribunal's conclusion based on factual evidence and dismissed the appeal by the Revenue.