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TMI Blog1997 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... right in law in deleting the addition on account of interest in respect of the assessee's children and his wife for the assessment years 1967-68 to 1970-71 ?" For the assessment year 1963-64, the assessee brought the reference made by approaching the High Court under section 256(2) of the Act to the effect : "Whether on the facts and in the circumstances of the case, the add back of Rs. 15,814 is justified in law ?" The assessee is the managing director of the Karnal Distillery Company Limited, Karnal. As per the books of account of the company, the said assessee had a deposit of Rs. 1,74,639 on April 3, 1962. The aforesaid amount was debited to the credit of Modern Property Dealers, Karnal, the partnership firm consisting of two sons and a daughter of the assessee. The said partners had a 1/3rd share each in the partnership. The aforesaid amount was shown to the credit of the three partners in equal shares in the books of account of Modern Property Dealers. On April 1, 1963, the aforesaid amount was shown in the accounts of Modern Property Dealers to have been returned to the assessee and further on the very same day it was also shown that the assessee gave the said amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, came to hold that the said transaction cannot be considered to be a genuine loan, and, therefore, the interest derived from the said amount could be taxed in the hands of the assessee under section 61 of the Act. With this conclusion the questions posed for different years having been answered in favour of the Revenue and against the assessee, the assessee has moved this court. The assessee appeared in person and ably argued his case. The assessee contended that the transaction in question having been held to be a loan by the Appellate Tribunal and the said conclusion being on a question of fact, it was not open to the High Court on a reference being made to interfere with that conclusion on a question of fact. The assessee also further contended that any father is entitled to give a loan to his children if the children want to carry on any business even without charging any interest from them and in such an event the income accruing from such loan amount cannot be taxed in the hands of the father and the High Court was wholly in error in coming to the conclusion that it was not a case of genuine loan on the ground that no interest had been charged. The assessee further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be made to the High Court under section 256 of the Act only on a question of law and the court would answer the said question of law and would not be justified in interfering on a question of fact. The assessee also relied upon the decision of this court in the case of Patnaik and Co. Ltd. v. CIT [1986] 161 ITR 365, wherein this court had held : "That the High Court was in error in re-examining the fact and in coming to the conclusion that the investment made by the assessee was not connected with the orders placed by the Government with the assessee and, therefore, the loss was a capital loss." In that case the Tribunal on consideration of the sequence of events and the close proximity of the investment made by the assessee with the receipt of Government order for motor vehicles, had come to the conclusion that the investment was made to further the sales of the assessee and boost his business and that the investment was made by way of commercial expediency and as such the loss which occurred was a revenue loss. But the High Court had interfered with that conclusion, and, therefore, this court had observed that since the question referred to the High Court was framed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said case clause (iv) of section 64(1) of the Income-tax Act, 1961, came up for consideration as to whether in computing the total income of an individual all income which arises directly or indirectly to a minor child can be included or not. It is in that connection this court had explained the true meaning of the expression that the income must be proximate as observed in Prem Bhai Parekh's case [1970] 77 ITR 27 (SC). But in the case on hand we are not really concerned with section 64(1) of the Act and the case is, therefore, of no direct assistance. The assessee in the course of his argument had also contended that the interest income which the children derived from the amount of loan transaction in their favour have already been taxed in their hands, and, therefore, the same cannot be taxed twice. Mr. Ramamurthi, however, repelling the aforesaid contention, had urged that under the Income-tax Act the Assessing Officer has the right to tax the right person, namely, the person who is liable to be taxed according to law with respect to a particular income and merely because a wrong person has been taxed with respect to a particular income the Assessing Officer is not precluded f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [1961] 42 ITR 1 had held that the aforesaid observations apply to the provisions of the Indian Income-tax Act and section 16 thereof which has been enacted with the intent and for the same purpose. Chapter V of the Income-tax Act, 1961, is also designed for the same purpose, and, therefore, the aforesaid observations in Chamberlain's case [1943] 25 TC 317 (HL) would also apply. Admittedly, the transaction between the assessee and the partners of the firm constituted by his children, and the so-called return of money on April 1, 1963, in the books of account of the firm of the children and retransfer of the same amount in the names of the children in the books of account of the assessee's firm is nothing but a paper device designedly made to reduce the tax burden of the assessee and by no stretch of imagination can be held to be a loan transaction by the assessee in favour of his children. This is also apparent from the inconsistent stand taken by the children in the affidavits filed in this court. Such a paper transaction intended merely to reduce the tax liability cannot be held to be a loan nor can the High Court in the circumstances be said to have exceeded its advisory ju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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