9911796707
|
Home
Issues:
1. Whether the payment made by the assessee to Ratiram Tansukhroy was admissible as a deduction under section 10(2)(xv) of the Income-tax Act? Analysis: The case involved an agreement between the assessee and a financier, Ratiram Tansukhroy, where the financier agreed to advance money to the assessee for financing a business venture. The dispute arose regarding the deductibility of the payment made by the assessee to the financier from the profits earned. The Tribunal found that the payment of a share of profits was not allowable as a deduction under section 10(2)(xv) as it was considered a diversion of profits after being earned by the assessee. The assessee contended that the payment should be deductible as a business expense, citing precedents such as the Supreme Court's decision in Dharamvir Dhir's case. However, the Tribunal found that the transaction was not a joint venture and only the interest payable to the financier was admissible under the Income-tax Act. The Tribunal's decision was based on the commercial expediency test established in previous cases. It was found that the financier did not advance any money to the assessee, and the arrangement seemed commercially imprudent as the financier showed a loss in the relevant year. The Tribunal rejected the contention that the transaction was genuine and upheld the disallowance of the deduction. The judgment referenced cases like Eastern Investments Ltd. and A.W. Walker & Co. to distinguish between interest payments and profit distributions. It was concluded that the payment of a share of profits in this case was not for the purpose of fostering the business but rather for the distribution or bifurcation of profits to reduce tax liability. In conclusion, the Court answered the question against the assessee, upholding the disallowance of the deduction under section 10(2)(xv) of the Income-tax Act. The Commissioner of Income-tax was awarded costs, and the decision was agreed upon by both judges, G.K. Mitter and A.N. Ray.
|
