C I T, PATIALA vs. R.K.GUPTA, CHANDIGARH

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ITR/379/1995HC Punjab & HaryanaPHHC01032452199511 September 2007Author: MR. JUSTICE M.M. KUMAR,MR. JUSTICE AJAY KUMAR MITTAL2 pages
AI SummaryRemanded

What did the High Court hold?

The High Court returned the question of law unanswered. The Court noted that the Income Tax Officer, Ward: 1(3), Chandigarh, had informed that the assessment records for the relevant year (1983-84, which was crucial as the ITAT order relied on it) were not traceable despite all efforts, as the case was very old and the assessee was no longer assessed in that ward. The officer was unable to ascertain if any appeal had been filed before the High Court for that year. Consequently, due to the unavailability of the assessment records, the Court could not adjudicate on the referred question of law. No finding was given on the merits of the ITAT's decision regarding the allowability of interest on borrowed capital.

What were the facts?

The Commissioner of Income Tax, Patiala (the revenue) filed an Income Tax Reference (ITR) No. 379 of 1995 before the High Court of Punjab and Haryana at Chandigarh. This reference arose from an order dated 30.9.1994 passed by the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, in I.T.A. No. 781/Chandi/1989, concerning assessment year 1985-86. The ITAT had allowed interest paid on borrowed capital invested for securing control over management of related companies, not for earning profits. The revenue sought to challenge this decision. During the proceedings, the revenue's counsel requested an opportunity to check the status of assessment year 1983-84, as the ITAT's order heavily relied on the decision for that year. Subsequently, the Income Tax Officer, Ward: 1(3), Chandigarh, informed that the assessment records for the relevant year are not traceable due to the case being old and the assessee no longer being assessed in that ward.

What were the issues?

The Tribunal referred the following question of law to the High Court: Whether, on the facts and in the circumstances of the case, the ITAT was right in law in allowing interest paid on borrowed capital which was invested for securing control over the management of related companies and not for the purpose of earning profits? The revenue's contention, implied by the reference itself, is that the interest paid on borrowed capital for acquiring management control of related companies should not be allowed as a deduction. The revenue argued that such expenditure was not for the purpose of earning profits. The judgment does not explicitly record the assessee's arguments, but it is understood that the assessee would have contended that the interest paid was a legitimate business expense incurred for the purpose of business operations or expansion, even if it involved acquiring management control.

Which sections of the Income-tax Act were involved?

Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH DATE OF DECISION: 11.9.2007 The Commissioner of Income Tax, Patiala …Applicant Versus Shri R.K. Gupta (HUF), Chandigarh …Respondent CORAM: HON’BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present: Mr. S.K. Garg Narwana, Advocate, for the applicant-revenue. M.M. KUMAR, J. This order shall dispose of I.T.R. Nos. 379 of 1995 and 380 of 1995 as common question of law and facts are involved. However, the facts are being referred from I.T.R. No. 379 of 1995. The Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for brevity, ‘the Tribunal’) by exercising its power under Section 256(1) of the Income-tax Act, 1961 (for brevity, ‘the Act’) has referred the following question of law, which is stated to have emerged from order dated 30.9.1994, in I.T.A. No. 781/Chandi/1989, in respect of assessment year 1985-86:- “Whether, on the facts and in the circumstances of the case, the ITAT was right in law in allowing intt. Paid on borrowed capital which was invested for securing control over the management of related companies and not for the purpose of earning profits?”

On 21.8.2007, learned counsel for the revenue had stated that the status of the earlier assessment year 1983-84 was checked and as per the information supplied to the learned counsel no record was available. He had, however, requested for one last opportunity to check up the status of the assessment year 1983-84 because the order passed in respect of that year was heavily relied upon by the Tribunal in its order, which is subject matter of consideration in the instant reference. At the hearing today, learned counsel for the revenue has placed on record a copy of the letter dated 10.9.2007, sent by the Income Tax Officer, Ward: 1(3), Chandigarh, intimating that the case under reference is very old and the assessee is not being assessed to tax in the aforementioned ward. The assessment record for the requisite year is not traceable despite all out efforts in that regard. It has been pointed out that the Income Tax Officer was unable to ascertain the position in respect of assessment year 1983-84 as to whether any appeal had ever been filed before this Court. The aforementioned letter dated 10.9.2007 is taken on record as Mark-‘A’. In view of the above, the question referred by the Tribunal is returned unanswered. (M.M. KUMAR) JUDGE (AJAY KUMAR MITTAL) September 11, 2007 JUDGE Pkapoor 2

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