1980 (8) TMI 81 - HC - Income Tax

Summary

Issues involved:
The judgment involves the disallowance of interest paid to a bank as a deduction by an assessee carrying on banking business and the eligibility of the assessee to carry forward losses.

Issue 1: Disallowance of interest paid to the bank as a deduction
The assessee, a bank, had its banking business taken over by another bank and thereafter only engaged in collecting outstanding debts. The Tribunal held that merely collecting outstanding arrears did not constitute carrying on a business activity, thus disallowing the deduction claimed by the assessee for interest paid to the bank. The Tribunal's decision was based on the fact that the assessee did not carry on the business of banking after the takeover. The Tribunal's finding was supported by legal precedents which established that merely collecting outstanding dues does not amount to carrying on a business. The Tribunal concluded that the assessee was not entitled to claim a deduction for business expenditure or carry forward the loss.

Issue 2: Eligibility to carry forward losses
For the succeeding assessment year, the assessee made an identical claim for deduction of interest paid to the bank, which was also disallowed by the authorities. The Tribunal dismissed the appeal, stating that the assessee was not carrying on banking business and hence not entitled to the deduction. The Tribunal's decision was based on the fact that the assessee's only activity post-takeover was to collect outstanding debts, which did not constitute carrying on a business. The Tribunal's decision was in line with established legal principles that a company collecting assets post-closure cannot be considered as carrying on a business. The Tribunal affirmed that the assessee was not eligible to claim the deduction for interest paid to the bank.

Conclusion:
The High Court upheld the Tribunal's decision, ruling in favor of the department and against the assessee. The Court affirmed that the assessee, post-takeover, was not engaged in banking business activities and therefore was not entitled to claim the deduction for interest paid to the bank or carry forward the resultant loss. The judgment was delivered by V. Balakrishna Eradi C.J. and G. Balagangadharan Nair.