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Income Tax Appellate Tribunal, ‘B’ BENCH : CHENNAI
Before: SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
In this appeal filed by the assessee, it is aggrieved on an addition of Rs.44,34,939/- as notional interest on a sum of Rs.5,21,75,755/- advance by me to one M/s. Bala Cares Foundation Trust.
Facts apropos are that , a Non Resident Indian had filed his return of income for the impugned assessment year disclosing Nil
ITA No. 2378/Mds/2017 :- 2 -: income. Assessee is a US Citizen and a doctor practicing in USA. He was having a few business in India called Hotel Bala, Kavi Bala Café and Hotel Bala (Travels) in Kodaikanal. During the relevant previous year assessee had given a sum of Rs.4,03,82,555/- from his personal account and a sum of Rs.1,17,93,200/- from the account of Hotel Bala which was his proprietorship concern, to M/s. Sri Bala Medical Centre.
The said M/s. Sri Bala Medical Centre was run by Bala Cares Foundation, a public charitable trust registered u/s.12AA of the Income Tax Act, 1961 (in short ‘’the Act’’). Assessee was put on notice as to why notional interest on such amounts advanced to M/s. Sri Bala Medical Centre should not be considered as its income. As per the ld. Assessing Officer, assessee ought have charged interest at 8.5% being prime lending rate applied by the State Bank of India. Reply of the assessee was that the trust M/s. Sri Bala Medical Centre was created by him for doing charitable activities in his village called Kavunji near Kodaikanal. As per the assessee the said trust was constructing a full fledged hospital. Contention of the assessee was that amount were treated as loan by M/s. Sri Bala Medical Centre, since the trust M/s.Bala Cares Foundation, running the hospital, had not received Foreign Contribution (Regulation) Act, 2010 permission. Contention of the assessee was that hospital was under construction and assessee had no intention of getting any interest from M/s. Bala Cares
ITA No. 2378/Mds/2017 :- 3 -:
Foundation Trust. However, ld. Assessing Officer did not accept the above contention. According to him, assessee would have earned interest of Rs.44,34,939/- at the rate of 8.5% on the sum of Rs.5,21,75,755/- advanced by him to Sri Bala Medical Centre. An addition of Rs.44,34,939/- was made.
Aggrieved, assessee moved in appeal before the ld. Commissioner of Income Tax (Appeals). Contentions raised before the ld. Assessing Officer were reiterated. Further, as per the assessee the addition was on a hypothetical income. However, ld. Commissioner of Income Tax (Appeals) did not accept these contentions. According to him, assessee had advanced huge money to the trust and M/s.Hotel Bala his proprietorship had given Rs.1,17,93,200/- as interest on its borrowings. According to him, assessee had transferred funds on which he was earning interest @8.5%, to the trust, thereby depriving himself of legitimate interest due to him. He held that ld. Assessing Officer was justified in making the addition of Rs.44,34,939/-, being notional interest @8.5% on Rs.5,21,75,755/-.
Now before me, the ld. Authorised Representative strongly assailing the orders of the lower authorities submitted that tax could be levied only on real income and not on notional income. According
ITA No. 2378/Mds/2017 :- 4 -: to him, total borrowings of the assessee as on 31.03.2012 was only Rs.5,05,504/- and borrowings as on 31.03.2013 was only �11,19,887/-. As per the ld. Authorised Representative against the above loans, assessee had a capital of �2,46,32,991/- as on 31.03.2012 and �6,88,32,699/- as on 31.03.2013 in M/s. Hotel Bala and other concerns run by him. According to him, just because assessee advanced interest free loans from his own source, notional addition ought not have been made.
Per contra, ld. Departmental Representative strongly supported the orders of the authorities below.
I have considered the rival contentions and perused the orders of the authorities below. It is not disputed that assessee’s own capital in various concerns run by him in India as on 31.03.2012 came to Rs.2,46,32,991/-, and as on 31.03.2013 came to Rs.6,88,32,699/-.
Against these, the interest bearing loans raised by the assessee came to Rs.5,05,504/- and Rs.11,19,887/- only respectively. Thus, loans raised by the assessee were only a minuscule percentage of assessee’s own capital. Apart from this, assessee was a Non Resident Indian and the sum of �4,03,82,558/- out of the total amount of Rs.5,21,75,755/- was given by the assessee from his own account and not from any of his business concern. In my opinion, assessee was ITA No. 2378/Mds/2017 :- 5 -: free to use his own funds for any lawful purpose and was not obliged under law to charge interest on any loans given by him. It is left for the assessee to decide how to utilize his own funds. In my opinion, lower authorities fell in error fastening an income which never arose to the assessee. Neither the trust had paid any interest to the assessee nor the assessee received any interest. There is no case for the Revenue that the trust was legally liable to pay interest at 8.5% to the assessee on the funds given by him. I am of the opinion that notional interest was unfairly added. Such addition stands deleted.
In the result, appeal of the assessee stands allowed.