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TMI Blog2017 (10) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... hich has been construed as capital balance, and as per the decision taken by the trust, interest has been provided on such capital balance of the beneficiaries. Therefore, the deduction ought to be allowed to them. - Decided in favour of assessee. Disallowance of the commission payment - assessee failed to demonstrate nature of services rendered by these concerns - addition u/s 40A - Held that:- We find that in the Asstt.Year 2007-08, the Tribunal has followed order of the ITAT in the Asstt.Year 2008-09 in deleting the addition as observing Trust has availed the services of these persons, therefore the commission was legitimately paid on the business brought by them. Resultantly ground raised by the assessee is allowed - Decided in favour of assessee. - ITA No. 476 and 477/Ahd/2014 - - - Dated:- 9-10-2017 - Shri Rajpal Yadav, Judicial Member And Shri N. K. Billaiya, Accountant Member Assessee by : Ms.Urvashi Shodhan Revenue by : Shri O.P. Meena, Sr.DR ORDER Per Rajpal Yadav, Judicial Member Present two appeals are directed at the instance of the assessee against separate orders of even dated i.e.27.12.2013 passed by the ld.CIT(A) in Asstt.Years 2009-10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nferred only from the real substance of the transaction. The assessee might under bonafide error make entry which were not In conformity with* the proper principle of accounting and merely by that could not be regarded as conclusive proof ignoring substance of the transaction. The finding of the learned Assessing Officer is that interest is allowable on loan amount, and certainly it is borrowed fund from beneficiaries and therefore it is in favour of the assessee that it is allowable on loan. In fact beneficiaries can not contribute towards the capital / corpus. The settler directs in the deed to trustees to do certain activities for the benefit of beneficiaries. Beneficiaries own their own cannot do anything in their capacity as beneficiary towards activity of trust or capital of trust. So also for the inference that it is contrary to provision of Sec. 40 (ba) of the I.T. Act 1961, is not at all relevant. Firstly how and why provision can be made applicable is not spelt out in the order and secondly the very provisions are applicable to AOP / BOI and not to your assessee and therefore, inference that it is against the said Provision is redundant. Finally amount b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich interest was payable by the trust cannot go against the assessee. A Trust is a distinct legal entity and different from the beneficiaries and therefore it cannot be said that after the money became payable to the beneficiaries under the deed as per their determinate share, it could be treated by the trust as its own money. The Tribunal was right in holding that the trust was entitled to the deduction of interest paid to beneficiaries on the income from the trust which was kept by the beneficiaries as loan Further your contention that interest to beneficiaries is interest on capital is not correct to understand trust laws it is important to understand key concepts involved in settlement of Trust. SETTLOR He is the person who settles the trust by appointing Trustees. TRUSTEES . Just as director are the organ by which a company functions, trustees are the organ by which trust functioning. In fact relationship between the trust and trustees are stronger. The Trustees are subjected to several obligation and duties and have rights and powers under the provisions of the Indian Trust Act. And as per the terms of the deed. BENEFICIARIES The pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 3,75,394 Total ₹ 72,20,281 ₹ 26,99,090 Trust Fund ₹ 1,000 ₹ 1,000 ₹ 72,21,281 ₹ 27,00,090 Thus capital is of ₹ 1,000/- only whereas interest is paid on loan from beneficiaries and not on capital of ₹ 1,000/- Opening balance of loan from beneficiaries is ₹ 72,20,281/- This fund is being utilized for the business purpose. Thus, interest paid is not on capital account but on borrowed fund and therefore we request not to disallow any part of interest paid to beneficiaries more sp when all the condition necessary for making claim of interest payment for the business purpose as per the Provision of the I. T.Act. are duly complied with. It is simply an error in presenting accounts. Even in the Annexure A to the Balance Sheet, capital account of Rohit Nandlal Trust is shown separately. Also Name of the beneficiaries, and their accounts are shown separately white ' presenting balance shee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to them. 8. In ground no.3, the assessee has pleaded that the ld.CIT(A) has erred in confirming the disallowance of ₹ 6,00,050/- and ₹ 5,25,764/- in the Asstt.Years 2009-10 and 2010-11 respectively out of the commission payment. 9. Brief facts of the case are that in the profit loss account, the assessee has debited commission expenses to Vimal enterprises, Chetna V. Vora and V.T. Vora HUF amounting to ₹ 3,75,000/-, ₹ 1,50,000/- and ₹ 75,000/- respectively. In the Asstt.Year 2010-11, such commission payment was made to only Vimal Enterprises and Chetna B. Vora of ₹ 3,75,000/- and ₹ 1,50,764/-. The AO has disallowed the commission payment by observing that the assessee failed to demonstrate nature of services rendered by these concerns. According to the AO, these are persons falling within the ambit of section 40A(2)(b) of the Act. Appeal to the CIT(A) did not bring any relief to the assessee. 10. The ld.counsel for the assessee, at the very outset submitted that commission was paid in the Asstt.Year 2007-08 and 2008-09 also. The AO has disallowed claim of the assessee. But these disallowances have been deleted by the Tribunal vid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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