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Issues involved: Interpretation of Income-tax Act, 1961 - Treatment of enhanced price as income and deduction of interest on loans.
Interpretation of enhanced price: The Tribunal had to determine if the extra amount of Rs. 2,07,943 realized as enhanced price due to a court decision should be considered as accrued income for the year. The court relied on the precedent set in Dhampur Sugar Mills Ltd. v. CIT [1991] 188 ITR 787, where it was held that such amounts should not be considered as part of the income for the year. The court, following this judgment, ruled in favor of the assessee and against the Revenue. Deduction of interest on loans: The issue revolved around the deduction claimed by the assessee for the interest paid on loans borrowed during the relevant accounting year. The Income-tax Officer disallowed a portion of the interest as the borrowed funds were lent to directors and a related firm interest-free. Citing the decision in CIT v. H. R. Sugar Factory P. Ltd. [1991] 187 ITR 363, the court upheld the disallowance of interest, stating that the borrowed funds were not utilized for the purpose of the company due to substantial interest-free loans given to directors and their related firm. The court ruled against the assessee and in favor of the Revenue based on this interpretation. Conclusion: The court answered the first question in favor of the assessee, following the precedent in Dhampur Sugar Mills Ltd. case, and the second question against the assessee, in line with the decision in CIT v. H. R. Sugar Factory P. Ltd. The judgment was delivered by B. P. JEEVAN REDDY C. J., with no order as to costs.
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