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TMI Blog1999 (7) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... e charges on the loan taken from D.D. Foundation Trust and on accumulated finance charges was allowable as deduction for the assessment year 1978-79 ?" The assessee is a private limited company. The shares of the assessee are held by the members of a single family. In its assessment for the assessment year 1978-79 relevant to the previous year ended on April 30, 1977, the assessee claimed deduction of a sum of Rs. 1,34,045 towards finance charges payable to one D.D. Foundation Trust, Bombay (hereinafter referred to as "the trust"). Under an agreement dated March 5, 1967, the assessee had received a loan of Rs. 2,00,000 from the said trust. Under the agreement between the assessee and the trust, the assessee agreed to pay finance charges ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l ("the Tribunal"). The Revenue came to this court by way of reference, which was numbered as Income-tax Reference No. 438 of 1987. In that case, in the facts and circumstances of the case, this court held that the Tribunal was wrong in reversing the order of the Income-tax Officer and the Commissioner of Income-tax (Appeals). It was observed : ". . . in our opinion, the Income-tax Officer is undoubtedly entitled while considering claim for deduction under section 36(1)(iii) of the Act to examine whether the amount paid as interest is really 'interest' and if he finds that it is not wholly interest but partly interest and partly payment for extra commercial consideration, to allow only that part of the so called interest which in his opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the amount claimed as 'interest' is really an interest, wholly or in part, and if he finds that it is not wholly interest, to ascertain that part of it which is interest and restrict the allowance of deduction under section 36(1)(iii) only to that part which represents interest and to disallow the balance. In our opinion, under section 36(1)(iii) of the Act, the assessee is entitled to deduction only of that part of the amount paid by him for money borrowed which can genuinely be regarded as interest. Any and every payment in the garb of interest in excess of what can really be termed as 'interest' cannot be allowed as a deduction under that section." In the present reference, the facts are different. During the previous year releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed by him in the past. He, therefore, allowed a sum of Rs. 48,000 and disallowed the balance. The above order of the Income-tax Officer was reversed by the Commissioner of Income-tax (Appeals). The appeal of the Revenue was also dismissed by the Tribunal. Hence, this reference. We have heard Mr. R. V. Desai, learned counsel for the Revenue, and also Mr. S. J. Mehta, learned counsel for the assessee. The controversy in this case is very limited. The maximum rate of finance charges payable in terms of the agreement as amended with effect from May 1, 1976, has been restricted to 15 per cent per annum. of the amount of outstanding loan including unpaid amount of finance charges. There is no dispute about the outstanding amount. What the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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