1991 (2) TMI 86 - HC - Income Tax

Summary

Issues Involved:
The issues involved in the judgment are related to the disallowance of payments made to an individual, interpretation of contractual terms, determination of salary components, applicability of legal provisions regarding deductions, and the purpose of loans taken by the assessee.

Interpretation of Contractual Terms:
The petitioner sought direction for the Income-tax Appellate Tribunal to state the case regarding the disallowance of payments made to Shri K. R. Sharma. The terms of the agreement between the parties were analyzed to determine the nature of the payments. The court considered the Supreme Court decisions in Gestetner Duplicators P. Ltd. v. CIT and Ram Prashad v. CIT to establish that remuneration based on a fixed percentage of turnover qualifies as salary. The court concluded that the payments to Shri K. R. Sharma, though described as commission, were essentially part of his salary due to the nature of his employment and the terms of the agreement.

Deductions and Allowable Expenditure:
The court addressed the aspect of expenditure incurred by Shri K. R. Sharma and its deduction from his salary. The Tribunal's view was that deductions from the salary of Shri Sharma would be relevant for his assessment, not the assessee's. The court referred to section 40A(5)(b)(iii) to determine the allowable expenditure in relation to an employee's income chargeable under the head "Salaries." It was concluded that the Tribunal was justified in not making a reference on this aspect as the deductions were to be considered in Shri Sharma's assessment, not the assessee's.

Purpose of Loans and Disallowance of Interest:
Regarding the second question, the court examined whether the interest paid by the assessee on money borrowed against an overdraft account could be claimed as a deduction. The court found that the loan amount was advanced to Shri Sharma for personal property construction, not for business purposes. As the interest was not charged from Shri Sharma, it was disallowed as a deduction under section 36(1)(iii). The Tribunal's decision to disallow Rs. 32,770 as the loan was not obtained for business purposes was upheld, emphasizing that the purpose of the loan is a factual question.

Conclusion:
The court dismissed the applications, affirming the Tribunal's decisions on both questions related to the disallowance of payments to Shri K. R. Sharma and the deduction of interest on loans not taken for business purposes.