Decided on October 17,1994



Manzoor Ahmed Bakshi, Judicial Member - (1.) WE find it convenient to dispose of these four appeals of the assessee relating to the assessment years 1985-86 and 1986-87 by this consolidated order. Two appeals relate to the quantum and two relate to the penalty under Section 271(1)(c) of the Income-tax Act. WE shall first deal with the quantum appeals.
(2.) Common issue involved in these appeals is relating to allowance of interest as a deduction in computing the income from business. The appellant is a company. It's first previous year ended on 30th June, 1981. It has purchased a house property which was partly let out to tenants even at the time of the purchase by the assessee-company. Part of the house property is stated to be utilised by the Directors for their residence. The assessee had borrowed loans from its Directors for the purchase of the said property. Interest was paid to the Directors on such borrowings. Assessee had claimed deduction on account of interest paid to the Directors in respect of money utilised for the purchase of the building. Deduction up to the assessment year 1984-85 was allowed to the assessee. The interest received from the assessee-company has been disclosed by the Directors in their individual returns and has been assessed as such. For assessment years 1985-86 and 1986-87 Assessing Officer has held that the assessee has not purchased the building for the purpose of business and that the same has been purchased in order to circumvent the provisions of the tax laws. The deduction has thus been denied to the assessee. CIT (Appeals) has confirmed the view of the Assessing Officer. It has been pointed out by the learned CIT (Appeals) that the assessee-company is run by Shri Ashok Kumar and his wife, Mrs. Shobha Kumar. Shri Sachhin Kumar, minor son of Shri Ashok Kumar, is also the shareholder. The CIT (Appeals) has held that Shri Ashok Kumar was carrying on business in the status of a firm, where the wife Smt. Sobha Kumar was the partner. The share income earned by the wife in that firm was clubbed in the hands of Shri Ashok Kumar under Section 64 of the Act. The assessee-company has shown income from commission received from a concern run by Shri Ashok Kumar in the capacity of a partner. The learned CIT (Appeals) has further held that it is clear from facts that the firm has passed on the commission to the assessee-company and that the company has no other independent business of its own. The CIT (Appeals), accordingly held that the facts clearly go to show that the company had acquired the property for being used by the Director himself. According to the learned CIT (Appeals), there was no necessity for acquisition of the property by the company especially when there were no funds available with it. The assessee-company was carrying on the business from the same premises where the firm from which the company has received the commission was carrying on the business. There was thus no necessity for purchasing the property for the purposes of business. She has accordingly confirmed the disallowance.
(3.) LEARNED Counsel for the assessee contended that the Revenue was not justified in taking a different view during the year under appeal when in the past deduction was allowed to the assessee and when the interest paid to the Directors has been assessed to tax. According to the learned Counsel, the property has been acquired for the purpose of business of the company and interest paid on the loans utilised for its purchase is allowable as a deduction. The learned Counsel further contended that by virtue of provisions of Benami Transactions Prohibition Act of 1987 Revenue is precluded from claiming that the property in the name of the company was a benami transaction. In this connection, reliance was placed on the decision of the Supreme Court in the case of Mithilesh Kumari v. Prem Behari Khare [1989 ] 177 ITR 97 and that of the Kerala High Court in the case of C. Narayanan v. Gangadharan (No. 2) [1989] 180 ITR 503. The learned Counsel further relied upon the order of the Tribunal in the case of Smt. Godavari Devi Sehgal v. ITO [1992] 198 ITR 108 (Delhi) (A.T.), where it has been held that unless new facts have come Into being the Revenue is not entitled to deviate from the earlier decisions.;

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