1985 (12) TMI 94 - AT - Income Tax

Summary

Issues: Disallowance of interest under section 40(b) of the Income-tax Act, 1961.

The judgment by the Appellate Tribunal ITAT Chandigarh dealt with the dispute raised by the revenue regarding the disallowance of interest under section 40(b) of the Income-tax Act, 1961. The case involved Shri Yoginder Mohan, who was a partner in his representative capacity of the HUF. The Assessing Officer had added the interest paid on an account belonging to Yoginder Mohan HUF. The AAC initially accepted the assessee's appeal based on Tribunal decisions and a Gujarat High Court decision. However, the Full Bench of the Gujarat High Court later overruled the decision relied upon, leading to the Tribunal reversing its earlier decision and allowing the revenue's appeal. A Miscellaneous Petition was filed, requesting the matter to be heard by a Division Bench due to the controversy and conflicting opinions in various High Courts. Detailed arguments were presented by both sides during the rehearing before the Division Bench.

The learned counsel for the assessee argued that the issue was covered by a consistent view of the Tribunal and the Gujarat High Court decision. The departmental representative relied on other cases and argued that since there were two views on similar grounds, the order against the revenue was perverse. Reference was made to the Andhra Pradesh High Court decision regarding the retrospective nature of an Explanation added to section 10 of the Taxation Laws (Amendment) Act, 1984.

After considering the submissions and the conflicting judicial opinions, the Tribunal noted the overruling of the Gujarat High Court decision and the retrospective application of the Explanation to section 40(b). The Tribunal emphasized that the Explanations were clarificatory and retrospective in nature, aiming to avoid inconvenience to taxpayers and reduce litigation. The Tribunal followed the principle recognized by the Gujarat High Court, Madras High Court, and Andhra Pradesh High Court, and held that the Explanations should govern assessments prior to the assessment year 1985-86. The Tribunal reversed the earlier decision based on the applicability of the Explanations to section 40(b, considering them procedural and retrospective, in line with the Supreme Court's stance on following the only available High Court decision on an issue.

Ultimately, the Tribunal allowed the appeal, emphasizing the retrospective and clarificatory nature of the Explanations to section 40(b) and the need to avoid unnecessary litigation by following the statutory amendments introduced to settle the controversy surrounding the disallowance of interest under section 40(b) of the Income-tax Act, 1961.