2008 (1) TMI 912 - HC - Income Tax

Summary

Issues involved: Appeal challenging tribunal findings on non-consideration of proviso to Sec. 14A of the Income Tax Act.

Summary:
The appeal was filed by the assesses challenging the tribunal's findings regarding the non-consideration of the proviso to Sec. 14A of the Income Tax Act. The tribunal allowed the appeal in part and remanded the matter to the assessing officer for consideration of the assessee's case related to the computation of expenditure. However, the tribunal did not grant relief concerning the expenditure incurred in relation to income not forming part of the total income, citing the decisions of the Supreme Court in COMMISSIONER OF INCOME TAX Vs. INDIAN BANK LTD. and COMMISSIONER OF INCOME TAX Vs. RAJENDRA PRASAD MOODY. The tribunal held that its decision did not apply to the case after the insertion of Sec. 14A of the Income Tax Act. The assessee then filed the present appeal raising various questions of law.

1. The first issue raised was whether the tribunal was correct in holding that the order passed by the commissioner was valid under Sec. 263 of the Act.
2. The second issue questioned whether the interest expenditure of a partner of a firm in their personal hands should be disallowed due to the share of income from the firm being exempt from income tax.
3. The third issue was about the justification of equating agricultural income with the share of profit of a firm, considering that agricultural income is not taxed at any stage.
4. The fourth issue concerned the disallowance of interest on a loan proportionate to the amount invested in the firm and whether it should be disallowed in the hands of the appellants.
5. The fifth issue questioned the justification of upholding the revision of the commissioner when no such disallowance was made for the previous assessment year, contrary to previous court findings.

During the hearing, it was concluded that the main question to be considered was whether the tribunal was justified in not granting relief to the assesses by not considering the proviso to Sec. 14A of the Income Tax Act. The court found that the tribunal did not consider the effect of the proviso to Sec. 14A of the Act in the case of the assessee. It was opined that if the proviso had been considered, the tribunal's decision would have been different. Therefore, the appeal was allowed, and the matter was remanded to the tribunal for further consideration of the assesses' case regarding the computation of expenditure under Sec. 14A of the Act, while leaving the rest of the tribunal's order undisturbed.