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TMI Blog2007 (3) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal was right in allowing interest neither contracted to be paid to the trust, nor claimed in the return, as a deduction from income from house property ?" 2. For convenience, the facts in T. C. No. 14 of 2004 are referred to here. 3. The assessee is a private company. The promoters of the company are the trustees of Shri Lakshmi Ammal Educational Trust. The trust owns shares in the company. It is seen that the said trust advanced a sum of Rs. 72,46,000 to the assessee-company. With this money the company purchased two properties and let them out. The company filed its return for the first time for the assessment years 1991-92 and 1992-93. However, they did not show the rental income from properties. During the assessment procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-96 and hence it filed a nil return. Consequently, it pleaded that the inclusion was unsustainable. 5. Noting the memorandum of understanding and the contentions raised, the assessing authority noted that it was strange that the understanding arrived at on April 1, 1992, was reduced into writing in the form of memorandum of understanding only on March 28, 1994. He stated that there were inconsistencies in the memorandum of understanding. He pointed out that the trust invested money for the purpose of acquiring the property for the use of the trust with the company availing of banking loan. The applications made by the company to the bank for the purpose of availing of loans also indicated this. He also pointed out that the returns of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all at the time the advance was made to the company, that the obligations arose due to the directors of the company being managing trustees of the trust. In the circumstances, the appellate authority agreed with the Assessing Officer that the assessee-company was not obliged to divert its income to the trust compensation for its loss on investment. It held that the income was received by the company first and then as a consideration for non-payment f interest was diverted to the trust. Consequently, the income was liable to be assessed at the hands of the assessee-company only. 7. On the question of claim of interest, the appellate authority held, as a measure of compensating the financial loss that the trust would suffer on the huge inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that it was not the case of anybody that the amount was advanced free of obligations or by way of gift and hence, if the rental income could not be allowed as claimed by the assessee, then the trust would be entitled to an interest. Hence, accepting the claim for payment of interest at 18 per cent., it confirmed the order of the first appellate authority. Consequently, the Tribunal rejected the appeal of the assessee as well as that of the Revenue. 9. Aggrieved by this, the Revenue has come on appeal contending that the Tribunal was not justified in allowing the interest at 18 per cent., which was not contracted for or claimed in the return. 10. We agree with the submissions made by learned senior standing counsel appearing for the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the payment of interest at 18 per cent. first time before the appellate authority. However, taking note of the memorandum of understanding and considering the fact that the question of diversion of income by overriding title as rejected, this plea was made by the assessee. While considering the same the Commissioner (Appeals) at paragraph 8 held that: "the interest to be allowed in the hands of the company would be: interest at the rate of 18 per cent. of the deposits made by the trust and the net property income, whichever is less." 14. Learned counsel for the respondents submitted that the Revenue would not be justified in saying that the trust advanced money to the detriment of its very existence. The parties always contemplated ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same time, the memorandum of understanding stands as regards the contemplation on the return of the investment made. However, the order of the Tribunal confirming the Commissioner (Appeals) order as regards the return on investment made is sustained to this extent. However, the order of the Tribunal restricting the return at 18 per cent. interest cannot be sustained even as an alternative plea since it is a one sided offer and there is no consent to receive the same at 18 per cent. The restriction is totally not borne out by any record. To this extent, we agree with the submission made by learned standing counsel for the Revenue that the Tribunal's order merits to be rejected. 16. In the above circumstances, we confirm the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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