INDER SAIN SEHGAL (HUF) vs. COMMISSIONER OF INCOME TAX, JALANDHAR.

ITA/222/2007HC Punjab & HaryanaPHHC01085104200706 April 2011Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL8 pages
AI SummaryDismissed

What were the facts?

The assessee, Inder Sain Sehgal (HUF), engaged in trading raw rubber and chemicals, appealed against the Income Tax Appellate Tribunal's order dated December 16, 2005. The assessment year in question was 2001-02. The Assessing Officer disallowed interest paid to coparceners amounting to Rs. 1,06,416/-. The CIT(A) partly allowed the appeal but upheld this disallowance. The Tribunal, relying on Supreme Court decisions, also sustained the addition. The assessee later sought rectification before the Tribunal, arguing that loans were from individual funds of coparceners and a non-coparcener entity, but this was dismissed as the arguments were not raised earlier. The High Court condoned a delay of 356 days in filing the present appeal against the Tribunal's order.

What did the High Court hold?

The High Court dismissed the appeal, finding no merit in the assessee's submissions. The Court held that the Supreme Court in CIT v. Gopal Bansi Lal Inani, answering a similar question in the negative, ruled that interest paid by an HUF to its members on loans received from them is not an admissible expenditure. This decision was based on earlier rulings in CIT v. Venu Gopal Inani and ITO, Calicut v. Smt. N.K.Sarda Thampatty, which interpreted Section 171 of the Act. These judgments emphasized that for claiming partition, actual division of property is essential, and an HUF cannot claim partition while enjoying property jointly. The Court noted that the assessee had not pleaded partition or separation of members, nor had it produced evidence that the funds advanced were individual funds of coparceners or that income therefrom was assessed separately. The Tribunal's finding that the case was squarely covered by the Supreme Court judgments was upheld, confirming the disallowance of interest as it amounted to interest paid to self. No issue was expressly left undecided.

What were the issues?

1. Whether, on the true and correct interpretation of Section 36(1)(iii) of the Income Tax Act, 1961, the disallowance of interest should be reversed for lack of material? 2. Whether the Tribunal's order is perverse due to the absence of a nexus between borrowing and lending of funds for the interest claim? 3. Whether the claim and allowance of interest under Section 36(1)(iii) is to be made out of business interest from commercial expediency? Assessee's contentions: The assessee argued that it is an HUF and coparceners are separate entities, thus interest paid to them is not interest paid to itself. It also contended that the Supreme Court decisions relied upon by the Tribunal (CIT v. Gopal Bansi Lal Inani and CIT v. Venu Gopal Inani) dealt with different issues and did not lay down a specific principle applicable to the present controversy. Revenue's contentions: The revenue supported the order passed by the Tribunal.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 143(1)(a),Section 171,Section 254(2),Section 260A

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 222 of 2007 (O&M) Date of Decision: 6.4.2011 Inder Sain Sehgal (HUF) ....Appellant. Versus Commissioner of Income Tax, Jalandhar ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Pankaj Jain, Advocate for the appellant. Mr. Vivek Sethi, Standing Counsel for the respondent. AJAY KUMAR MITTAL, J.

1.

This appeal has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 16.12.2005 passed by the Income Tax Appellate Tribunal, Amritsar Bench (hereinafter referred to as “the Tribunal”) in ITA No. 398/ASR/2005, relating to the assessment year 2001-02, claiming the following substantial questions of law:- “i. Whether on the true and correct interpretation of the provisions of Section 36(1)(iii) and the proposition of law the disallowance of interest be reversed since dehors the material? ii. Whether the Tribunal's order is perverse since there being no nexus between the borrowing and the -2- lending of the funds for the claim of the interest? iii. Whet

The order continues below.

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