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Issues: Disallowance of interest as income of the assessee and denial of interest under s. 214 of the IT Act, 1961.
Analysis: 1. The appeals were against the disallowance of interest as part of the assessee's income and the denial of interest under section 214 of the IT Act, 1961. The assessee, a registered firm, had obtained a contract for building construction and earned income from commission. The funds borrowed were advanced to another company for purchasing materials. The authorities disallowed the interest deduction, stating the income was not business income and the borrowed amount was not used for business purposes. The assessee argued that income from the contract was business income and the borrowed funds were indeed for business purposes. The Tribunal held that the actual use of funds, not contractual obligations, determined business use. As the funds were used for business, the interest disallowance was deleted for both assessment years. 2. The second issue was the denial of interest under section 214. The assessee claimed interest on tax refunded, while the Revenue argued that tax refund due to TDS deduction did not qualify as advance tax under section 214. The Revenue cited a case from the Allahabad High Court, while the assessee relied on a Delhi High Court case and other precedents. The Tribunal noted conflicting decisions but favored the assessee. It held that interest should be paid on tax refunds, as the Act allows it when the government benefits from the amount during the accounting year. Citing the Supreme Court's stance on interpretations favoring the assessee, the Tribunal directed the ITO to grant interest under section 214 for the tax refunded to the assessee. 3. In conclusion, the Tribunal allowed the appeals, ruling in favor of the assessee on both issues. The disallowance of interest as income and the denial of interest under section 214 were overturned, with the Tribunal directing the ITO to grant interest on the tax refunded to the assessee.
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