TMI Blog1984 (9) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... , on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the interest so paid to the above creditors was not an expenditure within the meaning of section 40(c) ? " The relevant facts of the case can be culled out from the statement of the case. The assessee-company paid a total amount of Rs. 47,783 as interest to its creditors. Out of this amount, a sum of Rs. 33,297 was paid to the relations of the directors or their associates. The deposits in the names of the relations of the directors or the associates was old and the interest so paid was being allowed by the Income-tax Officer in the past. In the assessment year 1971-72, the Income-tax Officer, taking note of the provisions of section 40(c) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of the company. It was also submitted that the company had liquid cash and there was no need for the assessee-company to borrow money on interest and, therefore, payment of interest was an attempt to reduce the profits. The Tribunal held that section 40(c) of the Act deals with an expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a relative of the director or such person, as the case may be. The Tribunal held that the interest paid on the deposits is not remuneration as remuneration is paid by an employer to an employee, and so the interest paid to such a relation cannot be taken as remuneration. The Tribunal also took the view that the benefit within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the businessman to run the business to the best of his capacity and in the manner he likes best. The Tribunal also held that a businessman would like to get any amount of money for the benefit of use in his own business and if he chooses to keep the money on such terms as the tender may agree, it has to be left entirely to the business acumen of the businessman. The Tribunal, therefore, confirmed the order of the Appellate Assistant Commissioner. A copy of the order of the Appellate Tribunal has been annexed and marked as annexure C forming part of the statement of the case. Mr. B. P. Rajgarhia has referred to section 40(c)(i) of the Act which lays down that notwithstanding anything to the contrary in sections 30 to 39, the following amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the year of account relating to the assessment year 1971-72. The interest rate paid has not been held to be excessive by the Income-tax Officer. He only considered whether the loans were for legitimate business needs and if the loans were not for legitimate business needs, then the payment of interest will be unreasonable. The Income-tax Officer found that the assessee-company had taken loans since long on which interests are being paid since long irrespective of the fact whether the needs of the company justified the loan year after year since the parties are either directors or their relatives or firms in which directors are directly interested and the amounts are standing in the books of the company. The Income-tax Officer held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons or associates. The Tribunal has also fully discussed that the loans taken by the assessee-company cannot be said to be not for legitimate business needs. The very circumstance that the assessee-company had to take loans from the Bihar State Finance Corporation, State Bank of India, Bank of India and M/s. General Electric clearly goes to show that the company was in need of money and so the assessee-company had to borrow money. The bank rate of interest was very high and it has not been pointed out that a higher rate of interest was paid by the assessee-company on the deposits made by the directors, their relations and their associates. It appears that in section 40(b) of the Act, the Income-tax Officer can disallow in the case of any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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