1982 (1) TMI 125 - AT - Income Tax

Summary

Issues:
1. Disallowance of standard deduction for personal use of company car.
2. Disallowance of interest paid to son on a loan taken for property.

Analysis:

Issue 1: Disallowance of standard deduction for personal use of company car
The appeal challenged the disallowance made in the assessment for the year 1977-78 regarding the standard deduction claimed by the assessee for using the company's car for personal purposes for a month. The first appellate authority rejected the claim, citing section 16(i) of the Income-tax Act, 1961, which does not provide for pro rata deduction. The assessee argued that since he paid for personal use, he should be entitled to a pro rata deduction. The tribunal noted that the car was available for personal use for only a month, and the assessee did not use it for the rest of the year. It held that the assessee should not be deprived of the higher standard deduction for the entire year due to non-satisfaction of conditions for only a month. The tribunal allowed the pro rata deduction, stating that the spirit of the claim and the language of section 16(i) warranted such allowance. Therefore, the appeal succeeded on this point.

Issue 2: Disallowance of interest paid to son on a loan taken for property
The second ground of appeal concerned the disallowance of interest paid to the assessee's son on a loan taken for purchasing a site. The authorities disallowed the claim, stating that the loan was for the site and not for constructing a building. The tribunal disagreed, citing section 24(1)(vi) of the Act, which allows deduction of interest on borrowed capital for property acquired with such capital. The tribunal held that the term "acquired" in the provision included the purchase of sites, and the narrow view of the authorities was not justified by the law. Therefore, the appeal also succeeded on this point.

In conclusion, the tribunal allowed the appeal, treating it as allowed, on both grounds of disallowance of standard deduction for personal use of a company car and disallowance of interest paid to the son on a loan taken for property.