1981 (4) TMI 19 - HC - Income Tax

High Court rules in favor of assessee on interest payment & income treatment issues under Income-tax Act

The High Court ruled in favor of the assessee on two main issues. Firstly, it held that the interest payment of Rs. 83,691 to the Kapoor group was an ... Business Expenditure, Income Issues involved:The judgment involves two main issues: 1. Whether the expenditure of Rs. 83,691 paid as interest to the Kapoor group is an admissible deduction under section 37 of the Income-tax Act, 1961.2. Whether the sum of Rs. 50,044, treated as a notional receipt and withdrawn, should be assessed in the hands of the assessee during the assessment year 1970-71.Issue 1:The High Court considered whether the interest payment of Rs. 83,691 by the assessee to the Kapoor group was an admissible deduction under section 37 of the Income-tax Act, 1961. The Tribunal found that the liability of the interest payment became that of the newly constituted firm, allowing the deduction. The Revenue contended that the assets were not transferred to the new firm, but the Court upheld that the liability was accepted by the new partners, making the deduction valid.Issue 2:Regarding the second issue, the Court examined the treatment of Rs. 50,044 as a notional receipt by the assessee. Initially shown as income, it was later reversed through journal entries. The Revenue argued that once shown as income, it could not be reversed, but the Court disagreed. It held that since no actual income was derived, the reversal was permissible before the assessment completion, thus not liable for tax assessment.The Court upheld the Tribunal's decisions on both issues, ruling in favor of the assessee and dismissing the Revenue's contentions.