S JAGATRAKSHAGAN Vs. DEPUTY COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) Tax Case (Appeals) are at the instance of the assessee against the order of the Tribunal by raising following questions of law:-

(2.) The facts in brief are as follows:-

(3.) The assessee herein, an individual promoted a company by name M/s. Sugantha Sugars Limited. The shares therein were subsequently sold to Prudential Mouli Sugars Limited. On the question as to the returns on the sale of shares, M/s. Prudential Mouli Sugars informed that apart from refund of share deposits, a sumof Rs. 20 lakhs was paid towards the services rendered by the assessee in connection with the promotion of the company. The books of accounts of the assessee showed the receipts of Rs. 1,26,39,905/- by way of cheque and a sum of Rs. 12,35,000/- through cash. Out of Rs. 1,26,39,979/- a sum of Rs. 99,77,000/- represented share deposit refund, Rs. 20,00,000/-towards service charges, Rs. 6,55,000/- towards payment to third parties and Rs. 13905/- towards expenses. The assessee offered no explanation as to the sources for the expenditure of Rs. 12,35,000/- and Rs. 13,905/-. This was hence added as income from business/profession. The assessee's total income was arrived at accordingly. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals). The assessee contended that he had borrowed money from the Bank for acquiring shares of Sugantham Sugars Ltd. and had paid bank charges therein. As the money was used for obtaining the shares, the interest and other charges paid to the Bank should be allowed as a deduction in the computation of income offered at Rs. 20 lakhs, it being the amount received for rendering services. The said issue was considered in the assessment to the extent of Rs. 7,01,079/- for the assessment year 1993-94. The Commissioner of Income Tax (Appeals) agreed with the assessee that the interest paid to the Bank for investment in shares was merited to be considered for deduction. The Commissioner of Income Tax (Appeals), however, directed the officer to compute the actual interest paid to the Bank and deduct the same from the taxable income. Any other receipt by way of refund on interest was to be taxed in the year of such receipt. However, on the other issues, the appellate commissioner granted partial relief. The Order of the Commissioner of Income Tax (Appeals) was however appealed against by the assessee and by the Revenue too. As far as the assessee's appeal is concerned in I. T. A. No. 2034 of 1998, he objected to the addition made in respect of foreign trip, addition on the expenses incurred through credit card, reimbursement of expenses of Rs. 12,46,965/-and the remand made on the deduction claimed on the interest payment made to the Bank as against the receipt of Rs. 20 lakhs towards service charges. The Revenue preferred an appeal to the Tribunal in I. T. A. No. 2015 of 1998 on the claim on the interest payment to the Bank on the money borrowed for the purpose of investment in Sugantham Sugars Ltd. The Revenue contended that the investment of the borrowed funds were in non-income earned assets and hence, the corresponding interest could not be allowed. In any event, if interest was to be allowed, it should be only Rs. 7,01,079/-.