The Court: The subject matter of challenge in this appeal is a judgment and order dated 27th January, 2014 by which the learned Appellate Tribunal allowed an appeal preferred by the assessee and dismissed a counter appeal preferred by the revenue. The revenue has come up in appeal before this Court. The following questions have been proposed by the revenue.
i) Whether on the facts and in the circumstances of the case the learned Tribunal erred in law in deleting the addition of Rs. 1,2010,988/- as deemed dividend under section 2(22)(e) of the Income Tax Act by relying on a decision of Mumbai Tribunal in the case of Bimal Sevantilal Karodia HUF where the assessee was neither a shareholder nor a beneficial shareholder without considering that in the present case the assessee HUF is a beneficial as well as registered share holder having 37.12% share holding of the company and for this the order passed by the learned Tribunal is perverse and deserved to be set aside?
ii) Whether on the facts and in the circumstances of the case the learned Tribunal erred in law in placing reliance on a decision of Mumbai Tribunal in the case of Bimal Sevantilal Karodia HUF without considering that the facts of the said case is squarely different from that of the present assessee?
iii) Whether on the facts and in the circumstances of the case, the learned Tribunal erred in law in deleting the addition made in respect of interest payment of Rs. 7,43,926/-?
iv) Whether in the facts and in the circumstances of the case, the consolidated order dated January 27, 2014 passed by the learned Tribunal is perverse and ought to be set aside?
v) The consolidated order dated January 27, 2014 passed by the Income Tax Appellate Tribunal is otherwise erroneous on facts and/or in law?
Question Nos. 3, 4 and 5 relate to deletion of the addition made by the Assessing Officer. The learned Tribunal has concurred with the following views of the CIT (Appeal).
“From assessment order it is apparent that the A.O himself has computed the interest income under the head “Business Income” and has disallowed the claim of interest payment of Rs. 7,43,926/-. If there is a temporary lull in the business activities, it does not mean that the appellant has closed its business. In such circumstances, the expenditure incurred by the appellant in the normal course of business are allowable as business expenses as held in the case of Dalhousie Investment Trust Co. Ltd. v. CIT, 168 ITR 486 (SC), Sarojini Rajesh v. CIT 71 ITR 504 (Mad) and K. Sreedharan & Co. v. CIT, 202 ITR 796. Even if the A.O's contention is acepted that the interest income was assessable as income from other sources, the interest payment would be allowable as deduction u/s. 57 of the Act and other expenses debited in P&L A/c would be allowable as business loss. In that situation also, there would be no effect on the total income. In view of the above, the A.O is directed to allow the claim of payment of interest of Rs. 7,43,926/-. The ground No3 is allowed”.
Mrs. Gutgutia, learned Advocate appearing for the revenue was unable to point out any mistake in the reasoning of the CIT which was approved by the learned Tribunal. Whether the payment of interest was allowable is basically a question of fact or at any rate a mixed question of law and fact. The learned Tribunal has for appropriate reasons upheld the views expressed by the CIT (Appeal) and we find no substance in the appeal preferred by the revenue on this score.
In so far as question Nos. 1 and 2 are concerned, Mr. Bharadwaj, learned Advocate appearing for the assessee did not dispute that the Karta is a member of the HUF which has taken the loan from the Company and, therefore, the case is squarely within the provisions of section 2(22)(e) of the Income Tax Act, which reads as follows:
“any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) (made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereinafter in this clause referred to as the said concern)) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;”
Therefore, question No. 1 is answered in the affirmative.
Question No. 2 need not be answered. The appeal is thus disposed of.