1984 (8) TMI 151 - AT - Income Tax

Assessee's Money Lending Business Upheld by Tribunal; Loss Deduction Allowed, Revenue's Appeal Dismissed

FOURTH INCOME TAX OFFICER. Versus GM JAIN.

FOURTH INCOME TAX OFFICER. Versus GM JAIN. - TTJ 020, 369, Issues:1. Whether the assessee was carrying on the business of money lending.2. Deductibility of interest paid on borrowed funds for money lending business.3. Cessation of money lending business due to diversion of funds.4. Disallowance of loss in money lending business for the assessment year 1979-80.5. Computation of house property income for the assessment year 1980-81.Analysis:1. The judgment revolves around determining whether the assessee was engaged in the business of money lending. The Income Tax Officer (ITO) disallowed the deduction of a loss in the money lending business for the assessment year 1980-81, arguing that the capital borrowed was diverted for personal expenses and property purchase. However, the Appellate Assistant Commissioner (AAC) found that the assessee was indeed carrying on the money lending business, and the interest paid on borrowed capital was a legitimate business expense. The Tribunal agreed with the AAC's finding that there was no cessation of the money lending business, as evidenced by subsequent transactions, and allowed the deduction of interest paid on borrowed funds.2. The issue of cessation of the money lending business due to the diversion of funds was raised by the Revenue. The Revenue contended that the diversion of funds for property purchase implied a cessation of the business. However, the Tribunal rejected this argument, noting that the assessee continued to engage in money lending transactions in subsequent years, indicating only a temporary pause in the business. The Tribunal concluded that there was no cessation of the money lending business, and therefore, the interest paid on borrowed funds was deductible.3. In the assessment year 1979-80, the Commissioner had modified the assessment by withdrawing the deduction of the loss in the money lending business. The Commissioner's decision was based on the belief that the money lending business had ceased due to the diversion of capital for property purchase. The Tribunal disagreed with this inference, emphasizing that the subsequent conduct of the assessee and the continued money lending transactions indicated a temporary lull rather than a cessation of the business. Consequently, the Tribunal set aside the Commissioner's order for the assessment year 1979-80.4. The final issue pertained to the computation of house property income for the assessment year 1980-81. The AAC had directed the ITO to accept the annual letting value as returned by the assessee, aligning with municipal valuation. The Revenue failed to demonstrate that the municipal valuation was undervalued, and the Tribunal upheld the AAC's decision, dismissing the Revenue's appeal and allowing the assessee's appeal.In conclusion, the Tribunal affirmed the continuation of the money lending business, allowed the deduction of interest paid on borrowed funds, set aside the Commissioner's decision for the assessment year 1979-80, and upheld the computation of house property income for the assessment year 1980-81.