1982 (1) TMI 69 - AT - Income Tax

Summary

Issues:
1. Interpretation of section 40A(8) of the Income-tax Act, 1961 regarding disallowance of interest payment.
2. Whether the provisions of section 40A(8) are attracted in the case of a private limited company regarding interest payment to a legal heir.

Detailed Analysis:
1. The appeals before the Appellate Tribunal ITAT Ahmedabad pertained to the assessment years 1979-80 and 1980-81, with the primary issue being the disallowance of interest payment by the assessee. The Income Tax Officer (ITO) disallowed a portion of the interest payment made by the assessee to Smt. Jiviben Himatlal Shah, the wife of a late Managing Director, invoking section 40A(8) of the Income-tax Act, 1961. The ITO contended that the provisions of section 40A(8) applied, leading to the disallowance of a specific amount from the interest payment.

2. The assessee challenged the ITO's decision before the learned Commissioner (Appeals), arguing that the amount credited to Smt. Jiviben Himatlal Shah's account was due to her succession as the legal heir of her late husband, and not a deposit as required under section 40A(8). However, the Commissioner (Appeals) upheld the ITO's decision, stating that the amount did not fall under the exceptions mentioned in the Explanation to section 40A(8), thereby sustaining the disallowance.

3. Upon further appeal before the Tribunal, the assessee's counsel contended that the Commissioner (Appeals) had erred in his interpretation. The counsel presented a letter and explained that the amount in question was not received as a deposit by the company but was transferred to the legal heir's account for personal use. The Tribunal examined the material on record, including the letter and the account details of Smt. Jiviben Himatlal Shah, and concluded that the provisions of section 40A(8) were not attracted in this case.

4. The Tribunal held that there was no evidence of borrowing by the assessee-company from the individual in question, indicating that the company provided a current account facility similar to a bank. Consequently, the Tribunal canceled the Commissioner (Appeals)'s order, deleted the additions in both years under consideration, and allowed the appeals in favor of the assessee.