- (1.) IN the present proceeding at the instance of the assessee, the only question sought to be referred is as follows ; " Whether, on the facts and in the circumstances of the case, the Tribunal was lawful to hold that transactions by book entries are not genuine transactions and, therefore, interest payment on debits as a result of such transactions are not allowable as deduction expenditure, specially in the absence of any such observation or finding by the INcome-tax Officer to this effect ?" The brief facts of the case are as follows : The assessee is assessed in the status of a registered firm. The assessment year is 1972-73 and the relevant previous year ended on December 31, 1971. The assessee-firm consists of seven partners, viz., Shri Chandra Mohan Gupta, Man Mohan, Brij Mohan Gupta, Jag Mohan Gupta, Anil Gupta, Pankaj Gupta and Sushil Gupta, being sons of one Shri Devi Chand, On January 1, 1971, Shri Devi Chand made a gift of Rs. 25,000 in favour of the Hindu undivided family of Shri Chandra Mohan Gupta. Shri Chandra Mohan Gupta made a gift of Rs. 25,000 in favour of the Hindu undivided family of his brother, Shri Man Mohan Gupta, and Shri Man Mohan Gupta made a gift of Rs. 25,000 to the Hindu undivided family of his younger brother, Shri Brij Mohan Gupta. On February 4, 1971, Shri Brij Mohan Gupta made a gift of Rs. 25,000 to the Hindu undivided family of his younger brother, Sri Jag Mohan Gupta. The interest amounts of Rs. 4,500 in the first three accounts and Rs. 4,050 in the fourth account were credited and deduction of the same was claimed by the assessee in computing its total income. The INcome-tax Officer did not accept the assessee's claim in view of the provisions of Section 40(b) of the INcome-tax Act, 1961 (hereinafter referred to as the Act), which in his opinion made no distinction between the payment by way of interest, commission, salary or remuneration to a partner as a partner and made to him in a different capacity. He relied on the decision of the Kerala High Court in the case of CIT v. Veeriah Reddiar [1969] 73 ITR 162. He, therefore, added this amount of Rs. 17,550 in the total income of the assessee. IN appeal, the Appellate Assistant Commissioner agreed with the order of the INcome-tax Officer.
(2.) BEING aggrieved by the order of the Appellate Assistant Commissioner, the assessee went in appeal before the Tribunal and the said appeal was allowed in part by the judgment and order dated December 29, 1976. The assessee being aggrieved as against the said order of the Tribunal sought for reference to this court of the aforesaid question. On behalf of the assessee, learned counsel referred to the relevant findings of the Tribunal as appear from paragraph No. 19 onwards of the judgment of the Tribunal. The main contention of the assessee is that the Tribunal was wrong in concluding that the transactions of gift were not genuine and they were made only with a view to reduce the taxable income of the partners although it has been held by the Tribunal that the claim of the assessee is not hit by Section 40(b) of the Income-tax Act, and it was found on the facts that three partners, namely, Shri Chandra Mohan Gupta, Man Mohan and Brij Mohan Gupta, were having credit balance at the opening of the relevant previous year.
(3.) MR. Ashok Kumar, learned counsel for the Revenue, contended that the transactions of gift are not genuine in view of the fact that there is already a final finding of fact by the Tribunal that Shri Devi Chand Gupta was having a debit balance at the opening of the relevant year and, accordingly, all subsequent transactions are apparently not genuine particularly as the gift was made by Devi Chand on January 1, 1971, and the gifts were made by Chandra Mohan Gupta and Man Mohan on the same date and of the same amount. After considering the respective contentions of the parties and perusing the materials available on record, we find that although the accounts of three brothers, namely, Chandra Mohan Gupta, Man Mohan and Brij Mohan Gupta, have been found to have shown credit balances at the opening of the relevant previous year there is no finding that the accounts of the said three brothers were having sufficient credit balance permitting the making a gift of the said amount of Rs. 25,000. No material is available on record showing that such a finding could be possible showing sufficiency of the credit balance in the accounts of the said three brothers.;