NARAYAN Vs. BALA

JUDGEMENT

(1.) THOUGH three questions were raised before the Income-tax Appellate Tribunal under Section 256(1) of the Act in respect of the assessment year 1973-74, before us only the following question has been raised : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Appellate Assistant Commissioner deleting the disallowance of interest of Rs. 97,691 made under Section 36(1)(iii) of the Income-tax Act, 1961 ?"

(2.) THE application under Section 256(1) in respect of the above question was rejected on the ground that the interest on the funds borrowed for the purpose of business was allowable and is settled by the decision of the Appellate Commissioner (from the assessment years 1952-53 to 1966-67 except assessment year 1961-62). The reference application was also rejected in respect of the other year on July 16, 1977. The facts giving rise to the above question are that the assessee-company had advanced loans to its directors and concerns in which they were interested, year after year either free of interest or on interest at a rate lesser than the rate at which it was raising loans for its own business. During the year under consideration, loans were advanced to eight parties. The Income-tax Officer found that the assessee had paid interest to 20 parties, out of which 16 parties were paid interest at the rate of 12 per cent., two parties were paid interest at the rate of 9 per cent. and the other two parties were paid interest at the rate of 6 per cent. In these circumstances, the assessee's claim for interest to the extent of Rs. 97,691 was disallowed.

(3.) THE Allahabad High Court in CIT v. Modi Pon Ltd. [1989] 175 ITR 118 has held that a question of law arises in the circumstances mentioned above. We are also of the opinion that a question of law arises out of the order of the Tribunal, and as such the Income-tax Appellate Tribunal is directed to refer the above question of law along with the statement of the case.