D.N.BARUAH, J. - (1.)AS per direction given by this Court in Civil Rules Nos. 11 of 1992 and 12 of 1992, the following question has been referred by the Tribunal under S. 256(2) of the INCOME TAX ACT, 1961 (for short "the Act"), for opinion of this Court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no justification on the part of the assessee -company to reduce the rate of interest from 18 per cent per annum to 12 per cent per annum, when such reduction was made from the point of view of a prudent businessman -

(2.)THE assessee is a public limited company carrying on consultancy business. The case relates to the asst. yrs. 1984 -85 and 1985 -86. The assessee -company gave an unsecured loan amounting to Rs. 12,08,000 to Kontest Chemicals Ltd. which is also a public company. Interest charged on the loan was 18 per cent. At that time the said Kontest Chemicals Ltd. had been incurring loss from time to time and the total loss amounted to Rs. 8,36,496 up to the calendar year, 1982. Thereafter, the assessee -company reduced the rate of interest from 18 per cent to 12 per cent per annum. The interest was reduced from 18 per cent to 12 per cent by a board resolution effective from 1st Jan., 1983. It may also be mentioned here that the parent company, i.e., the assessee - company, contributed to the share capital and also had given the loan to the subsidiary company, i.e., Kontest Chemicals Ltd., out of its own funds. Even after reduction of the interest rate by the parent company to 12 per cent., the loss incurred by the subsidiary company during the asst. yr. 1984 -85 was Rs. 3,28,935. In the course of assessment, the AO compared the sale and expenditure of Kontest Chemicals Ltd. in respect of the previous assessment year and the assessment year in question and found that there was no justification for lowering the rate of interest from 18 per cent to 12 per cent. and, accordingly, he added back Rs. 1,42,662 and Rs. 1,61,489 for the asst. yrs. 1984 -85 and 1985 -86, respectively, being the difference of interest charged at the rate of 12 per cent against 18 per cent as charged in the earlier years. Being aggrieved by the said order of the AO, the assessee -company preferred an appeal before the CIT (A). The CIT(A), after considering the facts of the case, observed that looking to the accumulated losses of the company, it was prudent exercise on the part of the assessee -company to reduce the rate of interest. He also held that the funds which had been advanced to the subsidiary company were out of funds available with the assessee -company and not out of borrowed funds and, therefore, interest at the rate of 12 per cent was reasonable. Accordingly, the CIT(A) deleted the additions of Rs. 1,42,662 and Rs. 1,61,489 made in the asst. yrs. 1984 -85 and 1985 -86, respectively. The Revenue being aggrieved by the order passed by the CIT(A) preferred appeal before the Tribunal. The Tribunal, after considering the facts of the case, held that such reduction of rate of interest from 18 per cent to 12 per cent. resulted in loss of revenue, as the amount reduced was exigible to tax. The Tribunal further held that the amounts exigible to tax minimised due to reduction of interest rate were quite substantial in both the assessment years. The Tribunal, therefore, reversed the order passed by the CIT(A) and added the aforesaid amounts. The assessee being aggrieved, requested the Tribunal to refer the above question for the opinion of this Court under S. 256(1) of the Act which, however, was rejected. Situated thus, the assessee approached this Court by filing applications (Civil Rules Nos. 11 of 1992 and 12 of 1992). This Court by order dt. 4th Feb., 1994, passed in the aforesaid civil rules directed the Tribunal to refer the question for opinion of this Court. Hence, the present reference.
We have heard Mr. A.R. Banerjee, learned counsel appearing on behalf of the assessee, and Mr. U. Bhuyan, learned counsel appearing on behalf of the Revenue.

(3.)MR . Banerjee submits that the assessee gave the loan with interest at the rate of 18 per cent. when Kontest Chemicals Ltd. was almost at the dying stage. Thereafter, the said company started improving its financial condition. Moreover, as it was a subsidiary company, the assessee -company had all the interest to see that the said company would not die. Therefore, endeavour was made to bring its life back and in that endeavour the assessee -company being successful in improving the condition of its subsidiary company, decided to give a fillip to it by reducing the rate of interest. Mr. Banerjee also submits that the loan was advanced from the assessee's own money and not borrowed from any financial institution by paying a higher rate of interest. Therefore, there was no reason for the AO or, for that matter the Tribunal to disbelieve this aspect. Mr. Bhuyan, on the other hand supports the finding of the Tribunal. Mr. Bhuyan submits that the AO had rightly added the tax because if the lowering of interest was allowed, the Revenue would suffer.