1989 (5) TMI 113 - AT - Income Tax

Appeal partially allowed, finance charges set aside. Gifts to Karta's daughters' children deemed valid. Interest levy rejected.

The appeal was allowed in part, with the disallowance of finance charges set aside for fresh consideration. The gifts made to the Karta's daughters' ... - Issues Involved:1. Disallowance of finance charges of Rs. 78,167.2. Validity of gifts made by the appellant to the grandchildren of the Karta through his daughters.3. Inclusion of income attributable to the sum of Rs. 25,000 in the appellant's income.4. Levy of interest under s. 215 of the IT Act.Issue 1: Disallowance of Finance Charges of Rs. 78,167The appellant challenged the confirmation of the disallowance of Rs. 78,167 claimed as finance charges (interest paid on money borrowed from banks). The assessee, a Hindu Undivided Family (HUF), claimed this expenditure against income earned from the sale of shares. The Income Tax Officer (ITO) questioned the nature of these charges, and the assessee explained that the overdraft facility was used for personal purposes, including payment of advance tax. The ITO disallowed the claim, stating that the liability could not be considered a business liability due to the lack of maintained accounts. The CIT(A) upheld the ITO's decision, noting that the withdrawals were used for non-business purposes and referencing a Calcutta High Court decision which was deemed not applicable to the present case. The Tribunal, upon hearing the appellant's representative and the Revenue's arguments, decided to set aside the issue to the CIT(A) for fresh decision, considering the observations made in a similar case of Mrs. Dolly Nanda.Issue 2: Validity of Gifts Made by the Appellant to the Grandchildren of the Karta Through His DaughtersThe appellant made gifts totaling Rs. 35,000 to seven grandchildren, with the ITO questioning the validity of these gifts under Hindu Law. The ITO deemed the gifts void as the donees were considered strangers to the HUF, and added Rs. 5,250 as interest on the gifted amount. The CIT(A) partially accepted the gifts made to the Karta's son's children but upheld the ITO's decision regarding the gifts to the Karta's daughters' children. The appellant argued that the gifts were within reasonable limits and supported by Hindu Law principles. The Tribunal examined the relevant Hindu Law provisions and case precedents, concluding that the gifts made to the children of the Karta's daughters were valid as they were within reasonable limits and made through affection. The Tribunal held that the gifts were not void and no interest should be added to the assessee's income.Issue 3: Inclusion of Income Attributable to the Sum of Rs. 25,000 in the Appellant's IncomeThe CIT(A) directed the ITO to add the income on the balance sum of Rs. 25,000 (gifts to the Karta's daughters' children) to the appellant's income. The appellant contested this inclusion, arguing that the entire gift should be accepted. The Tribunal, after analyzing the principles of Hindu Law and relevant case laws, determined that the gifts were valid and within reasonable limits. Consequently, the Tribunal ruled that no income attributable to the gifted amount should be included in the appellant's income.Issue 4: Levy of Interest Under s. 215 of the IT ActThe appellant raised a ground against the levy of interest under s. 215 of the IT Act, but this ground was rejected as not pressed.ConclusionThe appeal was allowed to the extent that the disallowance of finance charges was set aside for fresh consideration, and the gifts made to the Karta's daughters' children were deemed valid, resulting in no inclusion of interest on the gifted amount in the appellant's income. The ground against the levy of interest under s. 215 was rejected.