2005 (9) TMI 57 - HC - Income Tax

Tribunal upholds interest payment as expenditure in share purchase

The Tribunal affirmed the Commissioner's decision to allow the claim of payment of interest as an expenditure by the assessee due to a fund shortage ... Expenditure u/s 37 - claim made by the assessee that shares had been purchased by M/s. Deepak Choudhary, HUF and Shri P.S. Kalra, HUF on behalf of the assessee - circumstantial evidence sufficiently showed that such purchases were made and that since the assessee could not make the payment due to shortage of funds, the assessee was compelled to pay interest till the date of the delivery of the shares was taken by him. - purchase of shares by M/s. Deepak Choudhary and M/s. P.S. Kalra, Hindu undivided family was for and on behalf of the assessee and that the assessee had paid interest to the said purchasers who were working as sharebrokers, the Commissioner as also the Tribunal were justified in directing the allowance of the amount paid as an allowable expenditure. No substantial question of law arises for consideration in this appeal which fails and is hereby dismissed. Issues:1. Purchase of shares by M/s. Deepak Choudhary and M/s. P.S. Kalra on behalf of the assessee.2. Payment of interest by the assessee due to shortage of funds.3. Allowability of the amount paid as an expenditure.Analysis:1. The Commissioner of Income-tax found that although there was no documentary evidence supporting the claim that shares were purchased by M/s. Deepak Choudhary and M/s. P.S. Kalra on behalf of the assessee, circumstantial evidence indicated such purchases were made. The assessee couldn't make the payment due to a fund shortage, leading to the payment of interest until the shares were delivered. The Commissioner directed the Assessing Officer to allow the claim of payment of interest, which was affirmed by the Tribunal on appeal. The Tribunal held that it is customary in share transactions for one person to buy shares on behalf of others, and since interest was paid and shown as income by both parties, the expenditure was justified.2. The Tribunal confirmed the finding that the purchase of shares by M/s. Deepak Choudhary and M/s. P.S. Kalra was on behalf of the assessee, and the interest paid by the assessee to these purchasers, who were sharebrokers, was allowable as an expenditure. The Tribunal reasoned that since both parties treated the interest as income and there was no dispute regarding the payment of interest, the Commissioner's order directing the allowance of the expenditure was upheld. The Tribunal emphasized the understanding in the trade of share transactions where one person buys shares for others, justifying the payment and charging of interest.3. The concurrent finding of fact by the Commissioner and the Tribunal that the shares were purchased for and on behalf of the assessee, and the subsequent payment of interest, led to the direction for the allowance of the amount paid as an expenditure. The judgment concluded that no substantial question of law arose for consideration in the appeal, which was dismissed based on the justified findings of the Commissioner and the Tribunal. The decision to allow the expenditure was based on the understanding and customary practice in share transactions, supported by the treatment of interest as income by both parties involved.