9911796707
TMI Blog2015 (4) TMI 938X X X X Extracts X X X X X X X X Extracts X X X X ..... t thereon at 6% per annum and investment of the amount of such advance subscriptions separately in the bank deposits in compliance with the bye laws of the chit fund scheme, thus was integral part of the business of the assessee of running the chit fund, and consequently, interest received by the assessee on such bank deposits constituted its business income. The learned CIT(A), therefore, was not justified in treating such interest as income from other sources. Similarly, the learned CIT(A), in our opinion, was not justified in confirming the disallowance made by the Assessing Officer on account of interest paid by the assessee on the instalments received in advance from the customers of the chit funds, as the said interest paid by the assessee as per the scheme of the chit funds, clearly constituted expenditure incurred by it wholly and exclusively for the purpose of its business. According to us, there was a direct nexus between the interest paid by the assessee on the said instalments deposited by the members with its business of running a chit fund, and the same, therefore, was allowable as business expenditure, as rightly claimed by the assessee. We, therefore, delete the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iss the appeal of the Revenue. - In the result, appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed. - ITA No.1536/Hyd/10, ITA No.1553/Hyd/10 - - - Dated:- 24-9-2014 - SHRI P.M.JAGTAP AND SHRI SAKTIJIT DEY, JJ. For the Appellant : Shri K.Gopal For the Respondent : Shri D.Sudhakar Rao ORDER Per P.M. Jagtap, Accountant Member : These two appeals -one filed by the assessee being ITA No.1536/Hyd/2010 and the other filed by the Revenue being ITA No.1553/Hyd/2010- are cross appeals which are directed against the order of the Commissioner of Income-tax(Appeals)-V, Hyderabad dated 17.10.2010 for the assessment year 2005-06. Assessee s Appeal - ITA No.1536/Hyd/2010 2. First, we shall take up the appeal of the assessee, in which ground No.1 is general in nature seeking no decision thereon. 3. The issue raised in ground No.2 of the assessee s appeal relates to the disallowance of ₹ 43,42,.717 made by the Assessing Officer and confirmed by the learned CIT(A) on account of interest. 4. The assessee in the present case is a company which is engaged in the business of running a chit fund, entertainment, food pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. Chit Funds Act, 1971 the Foreman can demand future subscriptions which are to be kept in an approved bank. Sub-clause (4) of Section 25 reads as under. (4) All consolidated payments of future subscriptions realized by a foreman shall be deposited by him in an approved bank before the date of the next succeeding instalment. The amount so deposited may be withdrawn only for payment of future subscriptions. When any property is acquired in lieu of the consolidated payment it shall remain as security for the due payment of future subscriptions. 3.4 The Appellant further submits that, such amounts are kept in short term deposits in the banks and interest is earned from such deposits at more than 6% and the said interest is offered to tax. Therefore, the Appellant submits that since the Appellant is paying interest to the subscribers on either the advance instalments received or future subscriptions received and earning interest on the said amounts from banks on keeping such amounts as deposits, the interest paid is to be set off against interest received in which case no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment of interest. In other words, whether the subscribers pay advance instalments and not and whether the appellant pays interest on these instalments or not, its business income from commission is unaffected. There is no correlation between the two. Once, such a nexus is not establishment the question of allowability of expenses of ₹ 43,42,717/- under section 37 does not arise. Therefore, this addition is upheld, albeit for different reasons than those advanced by the Assessing Officer. Further, the income earned from keeping the subscribers money in fixed deposits is income from other sources . 8. The learned counsel for the assessee submitted that as per the Scheme of Chit Fund, instalments were received by the assessee company in advance from the chit subscribers in some cases and on such advances received from members, interest was paid at the rate of 6% per annum. He invited our attention to clause 5(d) of the Bye-Laws of the assessee company governing the Chit Fund Scheme to point out that the interest at the rate of 6% was payable by the assessee on the future instalments received from the subscribers in advance. He pointed out that the amount of advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id to the subscriber after the chit period. : It is manifest from the relevant clause of the Byelaws governing the scheme of chit fund that the interest at the rate of 6% was payable by the assessee company on the instalments received in advance form the subscribers. Such interest was required to be calculated monthly and kept separately by the assessee, and accordingly in compliance with clause 5(d) of the Bye-laws, the amount of instalments received in advance from the subscribers was kept by the assessee separately in the form of bank deposits. In our opinion, receipt of advance instalments from the subscribers, payment of interest thereon at 6% per annum and investment of the amount of such advance subscriptions separately in the bank deposits in compliance with the bye laws of the chit fund scheme, thus was integral part of the business of the assessee of running the chit fund, and consequently, interest received by the assessee on such bank deposits constituted its business income. The learned CIT(A), therefore, was not justified in treating such interest as income from other sources. Similarly, the learned CIT(A), in our opinion, was not justified in confirming the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d unreasonable and the same should be restricted to 1-2% of the exempt dividend income, we are unable to agree with this contention fully. It is observed that investment in the range of ₹ 25 to 30 crores was made by the assessee company in the shares during the year under consideration and in order to manage the investment of this volume, which also involved taking decisions from time to time regarding change in the portfolio, certain expenditure was required to be incurred, which cannot be as low as 1 or 2% of the exempt dividend income, as claimed by the learned counsel for the assessee. Having regard to the facts of the case including especially the quantum of investment made by the assessee in the shares, the quantum of dividend income received during the year under consideration, etc., we are of the view that it would be fair and reasonable to estimate the expenditure incurred by the assessee for earning of exempt dividend income at ₹ 2,32,375 being 5% of the exempt dividend income. We accordingly restrict the disallowance made by the Assessing Officer and confirmed by the CIT(A) under S.14A to ₹ 2,32,375 and allow partly ground No.3 of the assessee s appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
