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TMI Blog2008 (7) TMI 591X X X X Extracts X X X X X X X X Extracts X X X X ..... ing substantial question of law in the case of the assessee pertaining to the assessment years 1983-84, 1984-85, 1986-87, 1987-88 and 1988-89 for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing interest as claimed by the assessee at a higher rate on borrowings to the nominal fixed expected return on investments made in purchase of shares out of such borrowings from family concerns ?" 3. The assessee in this case is a family trust. For the assessment year 1983-84, the Assessing Officer framed assessment under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") on December 24, 1985 accepting the income ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of such borrowings and disallowed the balance interest as claimed by the assessee. 4. Similarly, for the assessment year 1984-85, the return of income was filed on June 30, 1984, declaring a net loss of Rs. 16,783. The assessment was framed by the Assessing Officer on February 27, 1987, accepting the loss of Rs. 16,783. In this year also, the Commissioner of Income-tax (Central), Ludhiana, took action under section 263 of the Act and issued similar directions, vide its order dated March 29, 1988, as issued for assess-ment year 1983-84. 5. The assessee challenged the order of the Commissioner of Income-tax (Central), Ludhiana, before the Tribunal. The Tribunal, vide its consoli-dated order dated August 9, 1991, cancelled th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 29,277 as having been paid to M/s. Brij Mohan Lal Om Parkash on loan of Rs. 1,75,000 at 16 per cent. for the purchase of 4 per cent. non-cumu-lative preference shares. The Assessing Officer while passing the assess-ment order restricted the allowance of interest to 4 per cent. on the initial amount borrowed which was worked out to Rs. 7,000. The balance of Rs.22,277 was disallowed. Similarly, for the assessment year 1987-88, the interest of Rs. 34,080 was restricted to Rs. 7,000 and an addition of Rs.27,080 was made. For the assessment year 1988-89, the Assessing Officer restricted the interest of Rs. 35,775 to Rs. 7,000 thereby resulting in an addition of Rs. 28,775 on the same analogy. 8. Feeling aggrieved against those orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lourable device to reduce its tax liability which is not permissible under the law. In support of his contention, learned counsel for the Revenue relied upon the following observations of the Supreme Court made in McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (headnote) : "Tax planning may be legitimate provided it is within the frame-work of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges." 11. On the other hand, learned counsel for the assessee submitted that the assessee had taken a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has not paid the interest at the said rate to the. Merely because the assessee has invested the said borrowed amount for the purchase of 4 per cent. non-cumulative preference shares, it cannot be presumed that the said transaction was colourable because no person with ordinary prudence will borrow money at 16 per cent. and invest the same for the purpose of non-cumulative preference shares. It is the wisdom of the assessee to take a business decision. If a wrong or unwise decision has been taken by the assessee, it cannot be said that the decision is dubious, or the assessee in such transaction has adopted dubious method to evade the payment of tax. In the instant case, there is no evidence of any dubious method or practice adopted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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