1999 (10) TMI 97 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of interest income from deposits with a trading concern.
2. Allowance of salary to the Karta of an HUF.

Issue 1: Treatment of interest income from deposits with a trading concern

The case involved cross-appeals by the assessee and the Revenue regarding the treatment of interest income from deposits with a trading concern for the assessment year 1985-86. The assessee contested the inclusion of Rs. 11,000 as interest income from the deposits with the trading concern, arguing that no interest was likely to be received due to the loan becoming sticky. The Income Tax Officer (ITO) included the amount as interest income based on past accrual basis treatment. The Commissioner of Income Tax (Appeals) upheld the ITO's decision, emphasizing that the assessee had not demanded repayment and had a vested interest in receiving the interest. The ITAT agreed with the CIT(A) and rejected the assessee's argument, stating that the interest income had always been taxed on accrual basis and the assessee had not claimed it as a bad debt. The ITAT upheld the inclusion of interest income in the total income of the assessee, citing the Supreme Court judgment in State Bank of Travancore vs. CIT.

Issue 2: Allowance of salary to the Karta of an HUF

The second issue involved the claim of salary by the assessee Hindu Undivided Family (HUF) to its Karta for looking after the affairs of the HUF. The assessee claimed a salary of Rs. 18,000 paid to the Karta, supported by an agreement. The Income Tax Officer rejected the claim due to the non-production of Smt. Sabina Bhatia for cross-examination. The CIT(A) allowed the claim, stating that the salary was paid for HUF affairs and that the non-production of Smt. Bhatia was not necessary as it was a legal issue. The ITAT disagreed with the CIT(A), noting that the reality of the arrangement needed to be verified by questioning Smt. Bhatia, a party to the agreement. The ITAT set aside the CIT(A)'s decision and ordered the assessee to produce Smt. Sabina Bhatia for cross-examination before the ITO for a fresh determination. The appeal by the assessee was dismissed, and that by the Revenue was allowed for statistical purposes.

This detailed analysis of the legal judgment highlights the key issues, arguments presented by the parties, decisions made by the authorities, and the final ruling by the ITAT on each issue involved in the case.