COMMISSIONER OF INCOME TAX Vs. L K TRUST

JUDGEMENT

(1.) THE Revenue has questioned the correctness of the order dated 22-2-2001 passed by the Income Tax Appellate Tribunal, bangalore, in ITANo. 2032/bang/1992, allowing the appeal of the assessee and setting aside the order passed by the first appellate authority by framing the following substantial questions of law and urging various grounds in support of the same which reads as follows:-

(2.) BRIEF facts of the case are stated for appreciating the rival legal contentions urged on behalf of the parties and to answer the questions framed. The respondent-assessee is a private family Trust inter-alia carrying on film business. During the assessment year 1989-90 it earned an income of Rs. 2,71,15,630/ -. Out of this, in the returns filed, a sum of Rs. 21,74,234/- deducted towards interest paid on the loan amount borrowed from Corporation Bank. The details of the loan borrowed are as under:- <FRM>JUDGEMENT_3980_ILR(KAR)_2007Html1.htm</FRM> On 26-11-1987 the afonnentioned amount of Rs. 3,80,00,000/- was transferred to a shareholder Gayathri Holdings Private Ltd (hereinafter mentioned as GHPL), which in rum advanced to G Venkateshwaran and group of companies for the purchase of shares of Shaw Wallace and Company. As on 31 -3-1980 the said group of companies transferred shares worth Rs. 1 ,48,23,915/- to GHPL and the balance amount of Rs. 2,31,76,085/- was due to it. The assessing authority by its order dated 11-8-1992, out of Rs. 21,74,234/- claimed deduction towards interest paid on the loan borrowed under Section 36 (1) (iii) of the Income Tax Act, disallowed a sum of Rs. 13,26,062/- on prorata basis. Being aggrieved by the same, the respondent-assessee filed first appeal. The first appellate authority confirmed the assessment order. Against that, the assessee filed second appeal before the Income Tax Appellate Tribunal. The tribunal, applying the three conditions laid down in the case of MADHAV PRASAD JATIA vs c. I. T, held that the assessee has fulfilled all the three conditions and therefore it is entitled to claim deduction of interest paid out of the income derived. The Revenue is aggrieved by the same and filed this appeal.

(3.) SRI M. V. Seshachala, learned counsel for the Revenue submitted that the impugned order is not only erroneous but error in law as the same is contrary to Section 36 (1 ) (iii) of the Act. According to him, the Tribunal has misdirected itself by applying the aforementioned decision. He further submitted that the said decision has no application to the facts of this case. Therefore, the learned counsel submits that the substantial questions of law framed be answered in favour of the revenue.