TMI Blog2017 (7) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - Dated:- 11-4-2017 - F. M. REIS NUTAN D. SARDESSAI, JJ. Ms. A. Razaq, Advocate for the appellant. Mr. P. J. Pardiwalla, Senior Advocate with Mr. A. F. Diniz, Advocate for the respondent. Heard Ms. A. Razaq, learned counsel appearing for the appellant and Mr. P. J. Pardiwalla, learned Senior Counsel appearing for the respondent. 2. The above appeals under Section 260-A of the Income Tax Act came to be admitted by an order dated 12.12.2011 on the following substantial question of law. Whether the Income Tax Appellate Tribunal was right in deleting the addition made by the A.O., disallowing the charter hire charges of Barges as being excessive under Section 40A(ii)(a) of the Income Tax Act ? 3. Ms. A. Razaq, learned counsel appearing for the appellant points out that though the hire charges have been assessed in the hands of HUF, the amounts were duly received by the individual members of the HUF. The learned counsel as such points out that the impugned order passed by the Income Tax Appellate Tribunal on this count alone deserves to be quashed and set aside. The learned counsel further pointed out that as such amounts were allegedly paid in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction 6. On going through the said provisions, it clearly provides that in case the first part of the Section is satisfied, the question of refusing such charges when such amounts are not excessive would not at all arise. In the present case, the authorities below have concurrently found that the charges claimed by the respondent were not excessive as they were based on the charges fixed by the Barge Owners Association. As the findings of fact have been arrived at based on the documentary evidence on record whose authenticity has not been disputed by the appellant, we find that such findings cannot be said to be perverse. The learned counsel appearing for the appellant was unable to point out that the finding rendered by the authorities below is on the basis of misreading of the evidence or that any relevant document has been over-looked while arriving at such findings of fact. As already pointed out herein above, the findings of fact are based on the documentary evidence and consequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accruing to him therefrom, so much of the expenditure as it so considered by him to be excessive or unreasonable, shall not be allowed as a deduction. The object of Section 40A(2) is to prevent diversion of income. An assessee who has large income and is liable to pay tax at the highest rate prescribed under the Act often seeks to transfer a part of his income to a related person who is not liable to pay tax at all or liable to pay tax at a rate lower than the rate at which the assessee pays the tax. In order to curb such tendency of diversion of income and thereby reducing the tax liability by illegitimate means, Section 40-A was added to the Act by an amendment made by the Finance Act, 1968. Clause (b) of Section 40A(2) gives the list of related persons. It is only where the payment is made by the assessee to the related persons mentioned in clause (b) of Section 40A(2) of the Act that the Assessing Officer gets jurisdiction to disallow the expenditure or a part of the expenditure which he considers excessive or unreasonable. Clause (b) of Section 40A(2) reads as under : 40A(2)(b) The persons referred to in clause (a) are the following, namely:- (i) where the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of clause (b) of Section 40A(2). Sub-clause (ii) provides that where the assessee is a company, firm, association of persons or Hindu undivided family, any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member would be a related person. In the present case, the assessee is a company and the seller is its subsidiary company. The seller i.e. the subsidiary company does not fall in any of the capacities mentioned under sub-clause (ii) of clause (b). Only a director of the company, partner of the firm, or member of the association or family or any relative of such director, partner or member is a related person, under sub-clause (ii) of clause (b) of sub-section (2). Another company, even if it is a subsidiary of the assessee , is not a related person within the meaning of sub-clause (ii) of clause (b) of Section 40A(2). Sub-clause (iv) of clause (b) of Section 40A(2) provides that in case of a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association ..... X X X X Extracts X X X X X X X X Extracts X X X X
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