TMI Blog2012 (8) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee with regard to the fact that the payment of interest at 18% p.a.is not excessive and unreasonable - IT APPEAL NO. 644 (BANG.) OF 2011 & C.O. No. 51 (Bang.) of 2011 - - - Dated:- 12-6-2012 - SMT. P. MADHAVI DEVI, AND JASON P. BOAZ, JJ. Dr. Satya Sai Rath for the Appellant. V. Srinivasan for the Respondent. ORDER Jason P. Boaz, Accountant Member - This appeal by the Revenue and the cross-objection by the assessee are directed against the order of the Commissioner of Income Tax (Appeals), Mysore dated 15.03.2011 for Assessment Year 2007-08. 2. The facts of the case, in brief, are as under : 2.1 The assessee is a registered trust managing a residential school called "Coorg Public School" at Gonikoppal, Kodagu District. The assessee trust is not registered under section 12 of the Income Tax Act, 1961 (herein after referred as 'the Act') and it is not claiming exemption under section 11 or 10(23) of the Act. The assessee filed its return of income for Assessment Year 2007-08 on 20.9.2007 in the status of an AOP declaring a loss of Rs. 5,12,445. In the course of assessment proceedings, the Assessing Officer found that the major expenditure clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid by the cross objector to the trustees and family members of the trustees and directing the learned Assessing Officer to make a disallowance under the facts and in the circumstances of the cross objector's case. 3. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the cross objector/respondent denies itself liable to be charged to interest under section 234B of the Act, which under the facts and in the circumstances of the respondent/cross objector's case deserves to be cancelled. 4. For the above and other grounds that may be urged at the time of hearing of the Cross Objection, your cross objector humbly prays that the cross objection may be allowed and justice rendered." 4.1 The learned Departmental Representative submitted that the learned CIT(A) was not justified in holding that the status of the assessee has to be considered as 'individual.' He submitted that the decision of the Hon'ble High Court of Bombay in the case of DIT (Exemptions) v. Shardaben Bhagubhai Mafatlal Public Charitable Trust No. 8 [2001] 247 ITR 1 relied upon by the learned CIT(A) was on a different issue viz. relating to relief under section 80L of the Act. The said judgment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the learned CIT(A) on the disallowance made under section 40A(2)(b) of the Act. 6.1 We have heard both parties and having carefully perused and considered the material on record proceed to dispose off the two issues before us relating to the disallowance made under section 40(ba) and 40A(2)b) of the Act. 6.2 The first issue relates to the disallowance made under section 40(ba) of the Act. The provisions of section 40(ba) read as under : "40(ba) In the case of an association of persons or body of individuals [other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860(2) of 1860), or under any law corresponding to that Act in force in any part of India], any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such association or body to a member of such association or body." 6.3 From a plain reading of the aforesaid provisions, it becomes clear that the interest paid to a member of an AOP requires to be disallowed in terms of the aforesaid provisions. The finding of the learned CIT(A) on this issue on page 4 of his order is as under : "In view of the above decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since it can be invoked only while computing income under the head of the appellant since it can be invoked only while computing income under the head 'profits and gains of business or profession' and since the appellant has demonstrated beyond doubt in the preceding paragraphs that it is pursuing the charitable purpose of education, that it is not carrying on any business activity and that its income is not liable to be assessed under the head 'profits and gains of business or profession.' Even assuming that the income of the appellant is required to be assessed under that head, the invocation of section 40A(2) was uncalled for. Section 40A(2) empowers the Assessing Officer to disallow, in computing the profits and gains of business or profession, expenditure incurred for which payment has been made to the relatives of the assessee to the extent the expenditures considered to be excessive or unreasonable. The reasonableness of the expenditure has to be judged having regard to the far market value of the goods, services or facilities for which the payment is made or the legitimate business needs of the assessee or the benefit derived by or accruing to the assessee from such payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that the banks lend money after accepting security and the trustees had given unsecured loans to the trust. It is also contended that the Amritsar Bench of the Tribunal in the case of ITO v. Bansi Lal Gupta [2008] 23 SOT 1 (URO) and Lucknow 'B' Bench of the Tribunal in Satya Narain Kesho Ram (P) Ltd. v. Dy. CIT [2009] 122 TTJ 839 has held that the interest paid at 24% per annum cannot be said to be unreasonable. The learned CIT(A) has not considered these aspects of the matter when he sustained the disallowance and directed that the similar disallowance be made in respect of interest paid to trustees/directors of the Tribunal. 7.3 Considering the aforesaid portion, we consider it proper to restore the matter to the file of the Assessing Officer to consider de novo, the contention of the assessee with regard to the fact that the payment of interest at 18% per annum is not excessive and unreasonable. We are not commenting on the merits of the matter and it is sufficient to observe that all contentions are left open to be decided by the Assessing Officer. The order of the learned CIT(A) upholding the disallowance of interest is therefore reversed and the Assessing Officer is di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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