2006 (9) TMI 140 - HC - Income Tax

Lease rent - Determination of the rental value - disallowance of interest attributable to loans - under the head Business - commercial business activity - HELD THAT - The finding recorded by the Tribunal that it would be a travesty of justice if the assessee one of the co-owners is solely picked out and an enhanced income is attributed in his hands for the same property was based on a correct appreciation of evidence and therefore no question of law arises from the order passed by it. Disallowance of the interest - Tribunal based on the material and evidence available on record allowed the assessee s appeal on this issue and held that the right of attribution is available to the taxpayer to arrange the matters in the way most favourable to him and the said view in our considered opinion does not suffer from legal infirmity to warrant interference. In view of the above no substantial question of law arises for consideration of this court. In the result these appeals are dismissed.

Summary

Issues:
1. Merely because the rental income returned by other co-owners was interfered with by the Department, could it be a ground for extending the benefit of legality to the assessee?
2. In commercial business activity, should payments be apportioned to previous outstanding loans or subsequent ones?

Analysis:

Issue 1:
The case involved tax appeals against the order of the Income-tax Appellate Tribunal regarding lease rent and interest attributable to loans for the assessment years 1992-93, 1994-95, and 1996-97. The Assessing Officer found the appellant's deductions under the head "Business" to be substantial, primarily comprising interest payments related to loans for constructing a residential house. On the lease rent issue, the appellant's share was deemed low, leading to additions by the Assessing Officer. However, the Tribunal found it unjust to solely enhance the appellant's income when other co-owners' returns were not disturbed, emphasizing the principle of fairness and equality in taxation. The Tribunal's decision was based on a correct appreciation of evidence, upholding the benefit of the method most favorable to the assessee.

Issue 2:
Regarding the interest attributable to loans, the Assessing Officer disallowed deductions, attributing payments to the first loan in commercial business reality. The Commissioner of Income-tax (Appeals) also supported this view. However, the Tribunal allowed the appeals, citing the right of attribution available to the taxpayer to arrange matters favorably. The Tribunal's decision aligned with legal principles emphasizing the taxpayer's right of attribution, as highlighted in previous legal precedents. The Tribunal's decision was deemed legally sound and did not warrant interference.

In conclusion, the High Court dismissed the appeals, emphasizing the correctness of the Tribunal's decisions on both issues. The court found no substantial questions of law requiring consideration, leading to the closure of related motions.