SOMAIYA K J Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question raised in this reference under section 66(1) are as follows :

(2.) THE assessee was a shareholder and director of the Famous Finance Corporation Pvt. Ltd., which was carrying on the business of distributing cinema films. The assessee held 1/3 of the subscribed share capital of the said company. He had made advances to the said company from time to time although he was not a money -lender an was not carrying on any money -landing business. The assessee, however, had other lines of business. In the assessment years 1950 -51 to 1953 -54, corresponding to S. Y. 2005 to S. Y. 2008, the assessee had debited the interest due to him from the company on the advances made by him to the company and in each of these years he had brought the sums debited to his profit and loss accounted in the income -tax return he had shown the debited interest as interest income. The assessee maintained a mercantile system of accounting. In those assessment years, the interest offered for tax was duly brought to tax. In the next two years he had made similar debits of interest but had not offered the amounts for tax on the ground that they represented unrealisable interest. His stand was accepted ultimately by the Tribunal and the said items were excluded from the assessment of the assessee. In S. Y. 2015, which was the previous year for the assessment year 1960 -61, with which we are concerned, the assessee claimed as deduction a total amount of Rs. 95,427. This included an amount of Rs. 18,237, which was the aggregate of the amount of interest on the loans advanced by the assessee to the company during S. Ys. 2005 and 2008, on which the assessee had paid tax during the said account years. It also included a sum of Rs. 26,800 which represented the unrealised dividend declared by the company during S. Ys. 2007 to 2010 and which had been shown in the returns for the said years and brought to tax. Both these items of deductions were disallowed by the Income -tax Officer and the disallowance was confirmed in Appellate Assistant Commissioner and the Income -tax Appellate Tribunal.

(3.) IN our opinion neither of the contentions of the assessee is entitled to succeed. The findings of the departmental authorities and the Tribunal are that the assessee had no money -lending business and the advances made to the company were not in connection with any such money -lending business activity of the assessee. The assessee had no business relations with the company and the advances made were not connected with any business activity of the assessee or incidental to the business activity of the assessee. The Appellate Assistant Commissioner has further observed that the advances made by the assessee to the company were the result of the relationship which the assessee had with the company inasmuch as he was a shareholder of the company to the extent of 1/3rd of its subscribed share capital and was interested in it. In view of these findings, it is impossible to look upon the deduction as a bad debt of the business under section 10(2) (xi) of the Indian Income -tax Act.