9911796707
|
Home
Issues:
1. Disallowance of interests paid to trusts. Detailed Analysis: The judgment pertains to an appeal concerning the disallowance of interests paid by an assessee-firm to two trusts, totaling Rs. 53,763. The dispute arises from the retrospective amendment introduced by the Finance Act, 1984, specifically Section 40A(9) which disallows deductions for sums paid towards setting up funds for labor or staff welfare. The assessing authority concluded that contributions made by the assessee were returned to the firm as deposits, hence denying the deduction. The CIT(A) upheld this disallowance, stating that the amounts had been returned to the appellant, making the income derived from them taxable to the assessee. The appellant argued that despite the retrospective amendment, the funds contributed to the trusts belonged to them until the unspent amount was recovered. The appellant emphasized that the interest paid was not returned and should be eligible for deduction. The Senior D.R. supported the disallowance, citing the objective of discouraging trusts for tax avoidance. Upon careful consideration, the tribunal examined the provisions of Section 40A(9), (10), and (11) to understand the legislative intent. The circular clarified that the assessee could claim the return of unexpended amounts from the trusts. The tribunal noted that the trusts remained the owners of the funds until the assessee exercised the option to recover unspent amounts. Notably, there was no provision deeming the assessee as the owner of the funds or the interest income derived by the trusts. The tribunal observed that the trusts had credited and paid interest, with tax deducted at the source, and their assessments were accepted under section 143(1). Consequently, the tribunal allowed the deduction for interest paid by the appellant to the trusts, as the trusts were the rightful owners of the income derived from the funds. In conclusion, the tribunal allowed the appeal, emphasizing that the interest paid by the appellant to the trusts should be eligible for deduction, as the trusts retained ownership of the funds and interest income.
|
