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Commissioner of Income-tax, Delhi-i Vs. Premier Auto Finance P. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax Reference No. 49 of 1974
Judge
Reported in[1981]128ITR540(Delhi)
Acts Income Tax Act, 1961 - Sections 37
AppellantCommissioner of Income-tax, Delhi-i
RespondentPremier Auto Finance P. Ltd.
Excerpt:
- - 4. on further appeal, the tribunal examined the transactions between the assessed and the 'delhi auto' and it was satisfied that the amounts advanced to delhi auto were purely on business considerations and that the interest relatable thereto was not liable to disallowance......by the assessed out of the borrowed funds to another company which can be briefly described as 'delhi auto'. the ito's view was that out of the monies borrowed by the assessed the sum of rs. 1,02,003 had been diverted for non-business purposes and that, thereforee, the interest paid on borrowed monies should be disallowed to that extent as not pertaining to business. 3. the assessed appealed to the aac who confirmed the view taken by the ito but but on a different ground. from a letter dated march 29, 1968, written by the assessed to the ito the aac inferred that there was an agreement between the assessed and the delhi auto that the latter should pay interest. he, thereforee, held that interest had accrued to the assessed but not shown in the return. this was the ground on which he.....
Judgment:

S. Ranganathan, J.

1. The question referred to us in this income-tax reference is as follows :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no justification in the disallowance of interest payment of Rs. 12,240 ?'

2. The assessment relates to the assessment year 1967-68. The assessed is M/s. Premier Auto Finance P. Ltd. and carries on the business of financing. During the relevant previous year it claimed interest payment of Rs. 1,28,002 as deduction in the computation of its business income on the ground that this was interest paid on monies borrowed for the purposes of the business. Out of this claim the ITO disallowed a sum of Rs. 12,240. This was arrived at by him by applying a rate of 12% to a sum of Rs. 1,02,003 which had been advanced by the assessed out of the borrowed funds to another company which can be briefly described as 'Delhi Auto'. The ITO's view was that out of the monies borrowed by the assessed the sum of Rs. 1,02,003 had been diverted for non-business purposes and that, thereforee, the interest paid on borrowed monies should be disallowed to that extent as not pertaining to business.

3. The assessed appealed to the AAC who confirmed the view taken by the ITO but but on a different ground. From a letter dated March 29, 1968, written by the assessed to the ITO the AAC inferred that there was an agreement between the assessed and the Delhi auto that the latter should pay interest. He, thereforee, held that interest had accrued to the assessed but not shown in the return. This was the ground on which he confirmed the addition by way of disallowance.

4. On further appeal, the Tribunal examined the transactions between the assessed and the 'Delhi Auto' and it was satisfied that the amounts advanced to Delhi Auto were purely on business considerations and that the interest relatable thereto was not liable to disallowance. The Tribunal also found that the letter dated March 29, 1968, had not been properly interpreted by the AAC as implying an agreement between the parties to charge interest. The disallowance of interest to the extent of Rs. 12,240 was, thereforee, set aside and hence this reference at the instance of the Commissioner.

5. We have been taken by the learned counsel for the applicant through the orders of ITO, AAC and the Tribunal, in the absence of any counsel for the assessed. We are of opinion that the view taken by the Tribunal is correct and that the disallowance of Rs. 12,240 was not justified. The Tribunal has found that the transactions between the assessed and the Delhi Auto were purely business transactions. The Delhi Auto was a dealer in trucks which had an arrangement with a Trivandrum concern in respect of Tata Mercedes Trucks or vehicles. The assessed was interested in obtaining the vehicles obtained by Delhi Auto from the Trivandrum firm. It was, thereforee, advancing from time to time monies to the Delhi Auto which, in turn, was passing on those monies to the Trivandrum firm. These transactions were reversed as and when the vehicles were actually delivered to the assessed-company. The Tribunal also examined one of the transactions relating to an advance of Rs. 1,59,364. There was, thereforee, ample material before the Tribunal to come to the conclusion that the advance of monies to Delhi Auto was for business purposes and not for non-business purposes.

6. Mr. Verma, learned counsel for the applicant, urged that the assessed had taken inconsistent stands in the letter dated March 29, 1968, and that the finding of the AAC was that, according to this letter, the Delhi Auto was willing to pay interest. The Tribunal, he says, has ignored this finding of the AAC. His grievance was that the Appellate Tribunal had not considered the ground of disallowance mentioned by the AAC. In our opinion this criticism is not correct. The Tribunal has pointed out that the letter written by the assessed had been misinterpreted as implying the accrual of interest and that a finding had been arrived at by the AAC wrongly that the assessed had purposely avoided entries showing the interest which had so accrued. The letter dated March 29, 1968, has not been placed before us. But reading the references to this letter at various places in the statement of case, the Tribunal's order and the AAC's order, it is seen that all that the letter stated was that Delhi Auto was willing to pay the principal amount but not interest. It was not correct for the AAC to have said that according to this letter Delhi Auto was willing to pay interest. There is no doubt some truth in the contention of Mr. Verma that the assessed had taken vague stands at various stages but, as we have already stated, the Tribunal has examined the position thoroughly and it has rightly come to the conclusion that the advances to Delhi Auto were for business purposes and that there was no agreement to pay interest for reasons of business expediency. We, thereforee, answer the question that is referred to us in the affirmative and against the applicant. Since the respondent has not appeared, there will be no order as to costs.


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