1983 (1) TMI 59 - HC - Income Tax

Summary

Issues Involved:

1. Whether the Tribunal was justified in holding that interest was to be charged only if ICI India actually received a dividend from ACCI.
2. Whether the Tribunal was right in holding that the sums of Rs. 2,42,607 and Rs. 9,62,515 respectively did not accrue as interest to the assessee for the previous years ending on 31st December 1959, and 31st December 1960, respectively.

Issue-wise Detailed Analysis:

1. Justification of Charging Interest Conditioned on Dividend Receipt:

The Tribunal examined the correspondence between ICI London and ICI India Pvt. Ltd., including letters dated 7th March 1957, 28th February 1957, 15th November 1957, and 29th September 1958. It concluded that the interest on the loan was conditional upon the actual receipt of dividends by the Indian subsidiary from ACCI. The Tribunal noted that the agreement stipulated that "interest is being charged only after the last day of September 1957, as the shares rank for dividend from the 1st October 1957." Additionally, the interest rate was not to exceed the dividend rate paid by ACCI. The High Court upheld this view, emphasizing that the loan was not a simple transaction but was intended to finance ACCI through ICI India Pvt. Ltd. for tax benefits in the UK. The High Court agreed with the Tribunal that the payment of interest was conditional upon the receipt of dividends from ACCI, as evidenced by the specific terms in the correspondence and the board resolution of ICI India Pvt. Ltd.

2. Accrual of Interest for the Relevant Assessment Years:

The Tribunal found that no interest accrued to the assessee for the years ending on 31st December 1959, and 31st December 1960, because the Indian subsidiary did not receive any dividend from ACCI during those periods. The Tribunal relied on the decision in CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC), which held that hypothetical income entries do not create a right to receive interest. The High Court supported this conclusion, noting that the interest liability was conditional upon the receipt of dividends and that no perfected debit for payment of interest existed at the end of the accounting years. The High Court reiterated that the interest rate was dependent on the dividend rate and that the arrangement was not an ordinary loan transaction but was specifically tied to the financing of ACCI through ICI India Pvt. Ltd. The High Court affirmed that the Tribunal was correct in deleting the interest amounts from the assessments for the relevant years.

Conclusion:

The High Court answered both questions in the affirmative, affirming the Tribunal's decision that no interest accrued to the assessee for the relevant assessment years and that the interest was to be charged only if ICI India actually received dividends from ACCI. The Court emphasized that the arrangement was conditional and specific to the receipt of dividends, and thus, the Tribunal's findings were justified based on the evidence and correspondence presented. The parties were ordered to bear their own costs.