COMMISSIONER OF INCOME-TAX Vs. NIMA LTD.

JUDGEMENT

(1.) THE Income -tax Appellate Tribunal, Ahmedabad Bench 'C', has referred the following question under Section 256(1) of the Income -tax Act, 1961, at the instance of the Commissioner of Income -tax :

(2.) THE assessment year is 1984 -85 and the relevant accounting period is the calendar year 1983. The assessee, a public limited company is a wholly owned subsidiary of Jyoti Limited. The assessee -company debited an amount of Rs. 11,49,206 on December 31, 1983, as interest payable to Jyoti Limited. The Assessing Officer disallowed the claim holding that no interest had been charged prior to the calendar year ; that Jyoti Limited had agreed not to charge any interest for the next year ; the assessee being a subsidiary of Jyoti Limited was more or less under the effective control of management of Jyoti Limited ; in the absence of any written agreement there was no contractual obligation on the assessee -company to pay such interest; Jyoti Limited, had not shown the outstanding balance due from the assessee -company in its books as loan up to June 30, 1983, and hence the interest payment had been made by the assessee for consideration other than in the normal course of carrying on business.

(3.) THE assessee preferred second appeal before the Tribunal. The Tribunal has vide its order dated March 1, 1993, upheld the claim made by the assessee -company. The Tribunal has found that substantial amount was payable by the assessee -company to Jyoti Limited, that it was not possible to presume that this would be non -interest bearing loan. It would be open to the creditor, according to the Tribunal not to charge or waive the interest, but if any interest is charged by the creditor the debtor is bound to honour the same. The Tribunal has further found that the assessee -company is continuously incurring losses and by claiming deduction for interest payment the assessee -company does not derive any advantage, considering the fact that up to the assessment year 1990 -91 there was no positive income in the hands of the assessee -company and there were substantial amounts of carried forward losses and unabsorbed depreciation ; while on the other hand, the interest paid by the assessee has been brought to tax in the hands of Jyoti Limited which is a profit making company. Thus, the Tribunal has ruled out any tax planning in the light of the facts available on record. Accordingly, the Tribunal has held that the assessee was entitled to the deduction of interest payment.