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TMI Blog1994 (2) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... a Trust under an agreement dated 2-4-1984, for a consideration of Rs. 25,35,644. Under the terms of agreement, it was agreed between the parties to pay goodwill of Rs. 13,75,000 in addition to the worth of the business valued as per the last balance sheet at Rs. 11,66,644. As per this agreement, assessee has taken over the business with its assets and liabilities at book value and claimed interest paid to Gowra Trust at Rs. 5,01,287.84 at 22% on the total consideration of Rs. 2,35,644. Assessee was asked to explain how this expenditure of interest was fully allowable. Assessee's explanation was that interest was payable to the trust. It also filed a copy of the sale agreement dated 2-4-1984 showing how the sale consideration was arrived at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that the trust had carried on business only for 26 months while the goodwill on super profit method was calculated at 36 months. He was also of the view that the interest payment on huge sum of Rs. 25,35,623 was not for business but only to siphon off a substantial portion of the income of the firm. Hence, he refused to take cognizance of the agreement dated 2-4-1984 on the ground that it was a sham intended for diversion of the income of the assessee. He therefore, disallowed interest relatable to the sum of Rs. 13,75,000 amounting to Rs. 3,02,500. He also disallowed a sum of Rs. 46,666 under section 40A(2a) on the ground that there was excess interest payment on the sum of Rs. 11,66,644, being the cost of the business taken over by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to him, the case of McDowell Co. Ltd. has no application and it cannot be said that a normal business transaction has got the ingredients of a device or a subterfuge. He also distinguished the facts of the case on hand from the facts of the case in Jalan Trading Co. v. CIT. According to him, section 40(b) cannot be pressed into service since the payment of interest was made not to the partners, but to the Trust. Thus, he deleted the addition. Revenue is aggrieved and is in appeal. 5. We have heard the rival submissions and perused the records. The learned departmental representative vehemently contended that the whole scheme was to reduce the tax liability as the trust would be taxed at maximum marginal rate of tax. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riting, whether testamentary or otherwise, including a wakf deed) is liable as representative assessee consists of or includes profits and gains of business, income-tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rates. 'Maximum marginal rate', for this purpose, means the rate of income-tax (including surcharge) applicable in relation to the highest slab of income in the case of an individual or an association of persons as specified in Finance Act of the relevant year. However, with a view to avoiding hardship in genuine case, it has been specifically provided that the provision for charging the entire income of the trust at the maximum marginal rate of income-tax will no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree-fold. In the first place, there would have to be as many assessments on the trustee as there are beneficiaries with determinate and known shares, though for the sake of convenience, there may be only one assessment order specifying separately the tax due in respect of the wealth of each beneficiary. Secondly, the assessment of the trust would have to be made in the same status as that of the beneficiary whose interest is sought to be taxed in the hands of the trustee. And, lastly, the amount of tax payable by the trustee would be the same as that payable by each beneficiary in respect of his beneficial interest, if he were assessed directly." Lastly, there is no material in the assessment order to show that the department has suffered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, it is, proved that for the assessment year 1985-86, the payment of interest by the assessee-firm to the trust was allowed by the ITO himself, as a deduction. Since the ITO has allowed the claim of the assessee in respect of payment of interest at 22% to the trust for the assessment year 1985-86, and there being no fresh material, there is no reason to take a different view in respect of the assessment year under consideration. Hence, we agree with the view of the CIT(A) on this point and reject the argument of the Revenue that under section 40A(2a) the interest must be cut down. 7. It is further argued that the goodwill of Rs. 13,75,000 was also a high figure motivated not by commercial considerations but extra-commercial consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X
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