1996 (7) TMI 125

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....l was right in holding that there was no justification on the part of the assessee-company to reduce the rate of interest from 18 per cent. per annum to 12 per cent. per annum, when such reduction was made from the point of view of a prudent businessman ? " The assessee is a public limited company carrying on consultancy business. The case relates to the assessment years 1984-85 and 1985-86. The assessee-company gave an unsecured loan amounting to Rs. 12,08,000 to Kontest Chemicals Ltd. which is also a public company. Interest charged on the loan was 18 per cent. At that time the said Kontest Chemicals Ltd. had been incurring loss from time to time and the total loss amounted to Rs. 8,36,496 up to the calendar year, 1982. Thereafter, the....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....company to reduce the rate of interest. He also held that the funds which had been advanced to the subsidiary company were out of funds available with the assessee-company and not out of borrowed funds and, therefore, interest at the rate of 12 per cent. was reasonable. Accordingly, the Commissioner of Income-tax (Appeals) deleted the additions of Rs. 1,42,662 and Rs. 1,61,489 made in the assessment years 1984-85 and 1985-86, respectively. The Revenue being aggrieved by the order passed by the Commissioner of Income-tax (Appeals) preferred appeal before the Income-tax Appellate Tribunal. The Tribunal, after considering the facts of the case, held that such reduction of rate of interest from 18 per cent. to 12 per cent. resulted in loss of r....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ecided to give a fillip to it by reducing the rate of interest. Mr. Banerjee also submits that the loan was advanced from the assessee's own money and not borrowed from any financial institution by paying a higher rate of interest. Therefore, there was no reason for the Assessing Officer or, for that matter the Tribunal to disbelieve this aspect. Mr. Bhuyan, on the other hand, supports the finding of the Tribunal. Mr. Bhuyan submits that the Assessing Officer had rightly added the tax because if the lowering of interest was allowed, the Revenue would suffer. On the rival contention of the parties it is to be seen whether the reduction in the rate of interest is permissible. A loan can be given by a person or a company to any other per....