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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 ..... . T. R. Nos. 87 to 91 of 1995 in which a common substantial question of law has been referred. 2. On the direction of this court given in I. T. C. Nos. 149 and 150 of 1992 and 22, 23 and 166 of 1993 dated November 23, 1994, the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as "the Tribunal") has referred the following 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 ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such borrowings in shares of closely related companies at a fixed nominal return for times to come. Accordingly, the Commissioner of Income-tax (Central), Ludhiana, modified the order of assessment and directed the Assessing Officer to restrict the allowance of interest on the borrowings to the extent of the expected return on the investment made out 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income-tax are, therefore, without justification. They are cancelled as such." 6. For these two assessment years, the Tribunal, on the directions of this court, has referred the aforesaid substantial question of law for the opinion of this court. 7. For the assessment year 1986-87, the assessee had claimed an interest of 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 assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed by the assessee in respect of the borrowings made from the family concerns/close relations at a higher rate of interest and investment of such borrowings in shares of closely related companies at a fixed nominal return for all times to come. Learned counsel submitted that in fact the assessee has adopted a colourable 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 encour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the Revenue ; and, in our opinion, no substantial ques-tion of law is arising from the impugned order passed by the Tribunal. In the present case, undisputedly, the assessee has borrowed certain amount from the family concerns at 16 per cent. It is also not the case of the Revenue that the assessee 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 bus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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