1984 (8) TMI 100 - AT - Income Tax

Summary

Issues:
- Whether the assessee is liable to pay interest under s. 40A(8) of the IT Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT BOMBAY-A involved the assessment years 1980-81 and 1981-82, with common issues in both appeals. The main issue was whether the assessee should pay interest under s. 40A(8) of the IT Act, 1961. The assessee had obtained a loan and advanced it to a company under the same management, earning interest in the process. The assessee claimed the interest should be exempt under s. 40A(8)(c), citing the company's objectives. However, both the ITO and CIT(A) did not agree with the assessee's claim, leading to the second appeal before the Tribunal.

The assessee argued that the company's main object included advancing money for various purposes, emphasizing this point to support their claim for exemption under s. 40A(8)(c). On the other hand, the Departmental Representative contended that the transaction fell under the category of objects incidental or ancillary to the main objects, not constituting a primary objective of the company. The Tribunal considered the submissions and examined the Memorandum and Articles of Association of the company to determine the nature of the transaction in question.

Upon reviewing the relevant provisions and the company's main objects outlined in its Memorandum and Articles of Association, the Tribunal found that the transaction fell within the scope of the company's main objectives. The Tribunal interpreted the relevant clauses under s. 40A(8)(c) and concluded that the assessee qualified as a financial company under sub-clause (iii) of the section, thereby exempting it from the provisions of s. 40A(8). Consequently, the Tribunal partly allowed the appeals, ruling in favor of the assessee for the assessment year 1980-81.

In summary, the Tribunal's decision hinged on the interpretation of the company's main objects and the applicability of s. 40A(8) to the interest earned by the assessee. By analyzing the company's objectives and the specific provisions of the IT Act, the Tribunal determined that the assessee qualified as a financial company and was exempt from paying interest under s. 40A(8).