1978 (7) TMI 138 - AT - Income Tax

Summary

Issues:
1. Allowance of interest paid to Smt. Vijaya Lakshmi.
2. Disallowance of interest paid to partner Shri G.S. Rastogi.
3. Examination of the assessee's claim under s. 40-A(3) of the Act.
4. Recalculation of interest under s. 139(8) and s. 215 of the Act.

Detailed Analysis:
1. The first issue pertains to the allowance of interest paid to Smt. Vijaya Lakshmi by the assessee firm. The ITO disallowed this amount, arguing it did not qualify as borrowed money under s. 36(1)(iii) of the IT Act, and cited various decisions to support the disallowance. However, the AAC overturned this decision, stating that the interest paid was deductible under s. 37(1) and s. 28(1) of the Act, as it was a trade liability and incurred for business purposes. The Tribunal upheld the AAC's decision, emphasizing that the amount due to Smt. Vijaya Lakshmi represented capital borrowed for business, making the interest payment allowable under s. 36(1)(iii) or s. 37(1) or s. 28(1) of the Act.

2. The second issue involves the disallowance of interest paid to partner Shri G.S. Rastogi under s. 40(b) of the Act. The ITO contended that the interest was paid to the partner, but the Tribunal found that it was actually paid to the Life Insurance Corporation of India. Citing a previous order, the Tribunal confirmed the deletion of this addition, aligning with the earlier decision that the interest did not represent payment to the partner.

3. The third issue concerns the examination of the assessee's claim under s. 40-A(3) of the Act, where the ITO had made an addition of Rs.17,531. The AAC directed the ITO to verify the claim under R. 6DD(j) of the Income-tax Rules, 1962. The Tribunal upheld this direction, finding it appropriate and in accordance with the law, resulting in the confirmation of the AAC's order on this point.

4. The final issue revolves around the recalculation of interest under s. 139(8) and s. 215 of the Act concerning the reduced total income of the assessee due to the appellate order. The AAC's direction to the ITO for such recalculation was deemed correct and lawful by the Tribunal, leading to the dismissal of the Revenue's objection. The Tribunal confirmed the AAC's decision, ultimately dismissing the appeal and upholding the order in its entirety.