B.D. FIBRE ASSOCIATES, MUMBAI V. ASST CIT 19(1), MUMBAI

ITA 1080/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4272 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 16-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ROBIN KOTHARI
• Section: 143(3); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO. 1080/MUM/2017 : A.Y : 2008 - 09 M/S. B.D. FIBRE ASSOCIATES 32, AHINSA, 25, NAPEAN SEA ROAD, MUMBAI 400 036 . PAN : AAATB1773B (APPELLANT) VS. ACIT - 19(1), MUMBAI. (RESPONDENT) APPELLANT BY : SHRI ROBIN KOTHARI RESPONDENT BY : SHRI MANOJ KUMAR SINGH DATE OF HEARING : 18/02/2019 DATE OF PRONOUNCEMENT : 13 /03/2019 O R D E R PER G.S. PANNU , VICE PRESIDENT : THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 30 , MUMBAI DATED 02.01.2017 , PERTAINING TO THE ASSESSMENT YEAR 2008 - 09 , WHICH IN TURN HAS ARISEN FROM THE ORDER DATED 31.03.2015 PASSED BY THE ASSESSING OFFICER, MUMBAI UNDER SECTION 143(3) R.W.S. 254 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. IN THIS APPEAL, ALTHOUGH ASSESSEE HAS RAISED MULTIPLE GROUNDS OF APPEAL, BUT THE ENTIRE DISPUTE REVOLVES AROUND THE CLAIM FOR DEDUCTION OF INTER EST PAID TO THE BENEFICIARIES OF ` 50,01,484/ - . 2 ITA NO. 1080/MUM/2017 M/S. B.D. FIBRE ASSOCIATES 3. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT THE APPELLANT BEFORE US IS A SPECIFIC TRUST, AND FOR THE YEAR UNDER CONSIDERATION IT FILED A RETURN OF INCOME DECLARING NIL INCOME. ORIGINALLY, AN ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 10.12.2010 DETERMINING AN INCOME OF ` 50,01,480/ - . THE AFORESAID SUM REPRESENTED INTEREST PAID BY ASSESSEE - TRUST TO ITS BENEFICIARIES ON THE MONIES BORROWED FROM THEM. THE CLAIM OF THE ASSESSEE WAS THAT THE MONIES BORROWED FROM THE BENEFICIARIES, WHICH WERE 100 IN NUMBER, W AS INVESTED AND INTEREST INCOME WAS EARNED THEREON, WHICH AMOUNTED TO ` 50,51,122 / - . AGAINST SUCH INTEREST INCOME RECEIVED, INTEREST PAID TO THE BENEFICIARIES ON THE MONIES BORROWED WAS CLAIMED T O BE DEDUCTIBLE UNDER SECTION 36(1) ( III ) AND/OR SECTION 57( III ) OF THE ACT. THE ASSESSING OFFICER DID NOT ACCEPT THE PLEA OF THE ASSESSEE AND THE CIT(A) ALSO AFFIRMED THE ACTION OF THE ASSESSING OFFICER. THE MATTER TRAVELLED TO THE TRIBUNAL AND VIDE ORDE R IN ITA NO. 7853/MUM/2011 DATED 3 1 .1 0 .2013, THE MATTER WAS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RE - EXAMINATION IN TERMS OF CERTAIN DIRECTIONS. THE IMPUGNED PROCEEDINGS ARE AS A RESULT OF THE MATTER BEING REMANDED BY THE TRIBUNAL VIDE IT S ORDER DATED 3 1 .1 0 .2013 (SUPRA). PERTINENTLY, THE CIT(A) IN PARA 6.3.1 OF HIS IMPUGNED ORDER HAS EXTRACTED THE RELEVANT PORTION OF THE ORDER OF TRIBUNAL DATED 30.11.2013 (SUPRA), A COPY OF WHICH HAS ALSO BEEN ENCLOSED IN THE PAPER BOOK FILED BEFORE US AT PAGES 83 TO 87. IN ITS AFORESAID ORDER, THE TRIBUNAL REQUIRED THE ASSESSING OFFICER TO CONSIDER THE PROVISIONS OF THE TRUST DEED AS TO WHETHER OR NOT IT PROVIDED FOR AN OBLIGATION TO PAY INTEREST ON THE MONIES BORROWED FROM THE BENEFICIARIES. IN THIS CONTEXT, THE ASSESSING OFFICER CONCLUDES IN THE IMPUGNED ORDER THAT THE BENEFICIARIES WERE NOT ENTITLED TO INTEREST ON THE FUNDS LYING WITH THE TRUST. THE SAID FINDING OF THE ASSESSING OFFICER HAS ALSO BEEN AFFIRMED BY THE CIT(A) BY REFERRING TO THE 3 ITA NO. 1080/MUM/2017 M/S. B.D. FIBRE ASSOCIATES RELEVANT DISCUSSION IN THE ASSESSMENT ORDER. IN THE IMPUGNED ASSESSMENT ORDER, THE ASSESSING OF FICER HAS REPRODUCED PARAS 3, 7 AND 8 OF THE TRUST DEED AND THEREAFTER INFERRED THAT THE BENEFICIARIES WERE NOT ENTITLED FOR INTEREST ON FUNDS LYING WITH THE TRUST. AGAINST THE AFORESAID DECISION OF THE INCOME - TAX AUTHORITIES IN DENYING THE DEDUCTION FOR INTEREST PAID TO THE BENEFICIARIES ON THE MONIES BORROWED FROM THEM, THE ASSESSEE IS IN APPEAL BEFORE US AGITATING THE DISALLOWANCE OF ` 50,01,484/ - . 4. AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE VEHEMENTLY POINTED OUT THAT FACT UAL LY AS WELL AS ON LEGAL POINT, THE LOWER AUTHORITIES HAVE MISDIRECTED THEMSELVES IN DISALLOWING ASSESSEES CLAIM FOR PAYMENT OF INTEREST ON THE MONIES BORROWED FROM THE BENEFICIARIES. IT HAS BEEN POINTED OUT THAT THE VERY MONEY WHICH WAS BORROWED HAS BEEN PUT TO USE FOR EARNING OF INTEREST INCOME AND THAT THERE IS A CLEAR NEXUS BETWEEN THE MONIES BORROWED AND THE INTEREST INCOME EARNED, WHICH IS BEING SUBJECTED TO TAX. APART THEREFROM, IT HAS ALSO BEEN POINTED OUT THAT IN THREE OTHER SIMILARLY PLACED SISTE R CONCERNS OF ASSESSEE, NAMELY, S PECIFIC TRUST IN THE CASE OF B.D. COTTON ASSOCIATES, B.D. ESTATE TRUST AND B.D. FIBRE ENTERPRISE , SIMILAR INTEREST PAID TO THE BENEFICIARIES ON THE MONIES BORROWED HA VE BEEN ALLOWED AS A DEDUCTION. IN PARTICULAR, A REFEREN CE WAS MADE TO THE CASE OF B.D. ESTATE TRUST, WHEREIN THE DISPUTE TRAVELLED TO THE TRIBUNAL AND VIDE ORDER IN ITA NO S . 4143 & 4144/ BOM /1991 AND 5080/BOM/1992 DATED 29.03.1995 FOR ASSESSMENT YEARS 1986 - 87, 1987 - 88 AND 1989 - 90 RESPECTIVELY , SIMILAR CLAIM WAS ALLOWED. REFERENCE HAS ALSO BEEN INVITED TO PAGE 123 OF THE PAPER BOOK WHEREIN IS PLACED A COPY OF THE ORDER OF ASSESSING OFFICER FOR ASSESSMENT YEAR 1989 - 90 GIVING EFFECT TO THE ORDER OF THE TRIBUNAL, WHEREIN SIMILAR CLAIM STANDS ALLOWED. THE LEARNED 4 ITA NO. 1080/MUM/2017 M/S. B.D. FIBRE ASSOCIATES R EPRESENTATIVE POINTED OUT THAT SUCH DECISION OF THE TRIBUNAL HAS BECOME FINAL INASMUCH AS NO APPEAL HAS BEEN PREFERRED TO THE HON'BLE HIGH COURT. SIMILARLY, IN THE CASE OF B.D. COTTON ASSOCIATES ALSO, IT HAS BEEN POINTED OUT THAT THE CIT(A) VIDE ORDER DAT ED 23 .0 8 .19 95 IN ASSESSMENT YEAR 1987 - 88 HAS ALLOWED THE CLAIM FOR DEDUCTION OF INTEREST, WHICH HAS ALSO BECOME FINAL AS NO APPEAL HAS BEEN PREFERRED BY THE REVENUE BEFORE THE TRIBUNAL. EVEN IN THE CASE OF B.D. FIBRE ENTERPRISES, THE CIT(A) ALLOWED THE CL AIM OF THE ASSESSEE IN RELATION TO ASSESSMENT YEAR 1988 - 89 VIDE ORDER DATED 06.11.1995 , A COPY OF WHICH HAS ALSO BEEN PLACED ON RECORD . 5. APART THEREFROM, THE LEARNED REPRESENTATIVE ASSERTED THAT THE TRUST DEED S IN THE AFORESAID SISTER CONCERNS ARE ALSO WORDED ON SIMILAR LINES AND, THEREFORE, THE ASSESSING OFFICER OUGHT NOT TO HAVE TAKEN A DIVERGENT VIEW IN THE INSTANT CASE . IN ANY CASE, IT IS SOUGHT TO BE POINTED OUT THAT THE TRUST DEED DOES NOT DISENTITLE THE PAYMENT OF INTEREST ON MONIES BORROWED FROM THE BENEFICIARIES. IN THIS CONNECTION, REFERENCE WAS ALSO INVITED TO PAGES 1 & 82 OF THE PAPER BOOK, WHEREIN IS PLACED COP Y OF THE MINUTES OF THE M EETING OF THE BENEFICIARIES AND M EETING OF THE TRUSTEES OF THE ASSESSEE - TRUST RESPECTIVELY, WHICH CLEARLY BRINGS OUT THE AUTHORISATION FOR PAYMENT OF INTEREST TO THE BENEFICIARIES ON THE MONIES LYING WITH THE TRUST. 6. WITH REGARD TO THE OBSERVATION OF THE CIT(A) THAT THE PAYMENT OF INTEREST WAS NOT DEBITED AS AN EXPENSE TO THE INCOME & EXPENDITURE ACCOUNT, BUT WAS A DISTRIBUTION OF INCOME, THE LEARNED REPRESENTATIVE REFERRED TO THE COPY OF INCOME & EXPENDITURE ACCOUNT FOR THE YEAR UNDER CONSIDERATION PLACED AT PAGES 91 & 92 OF THE PAPER BOOK. BY REFERRING TO THE INCOME & EXPENDITURE AC COUNT, IT HAS BEEN POINTED OUT THAT THE INTEREST 5 ITA NO. 1080/MUM/2017 M/S. B.D. FIBRE ASSOCIATES PAID TO 100 BENEFICIARIES AMOUNTING TO ` 50,01,484/ - IS SHOWN AS A SEPARATE ITEM OF DEDUCTION, WHICH IS QUITE DISTINCT FROM THE ALLOCATION OF INCOME TO THE 100 BENEFICIARIES. IT WAS, THEREFORE, CONTENDED THA T FACTUALLY THE OBSERVATION OF THE CIT(A) IS WRONG AND THAT THE IMPUGNED AMOUNT DEPICTED IN THE INCOME & EXPENDITURE ACCOUNT DOES NOT REFLECT AN ALLOCATION OF INCOME TO THE BENEFICIARIES. 7. ON THE OTHER HAND, THE LD. DR APPEARING FOR THE REVENUE HAS RELI ED UPON THE REASONING CONTAINED IN THE ORDERS OF THE AUTHORITIES BELOW, WHICH WE HAVE ALREADY NOTED IN THE EARLIER PARAS AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. AS THE DISCUSSION IN THE EA RLIER PARAS REVEAL, THE DISPUTE IN QUESTION HAS COME - UP BEFORE THE TRIBUNAL FOR THE SECOND TIME IN THE INSTANT ASSESSMENT YEAR. THE DISPUTE LIES IN A NARROW COMPASS INASMUCH AS IT RELATES TO THE DEDUCTIBILITY OF INTEREST PAID TO THE BENEFICIARIES ON MONIE S BORROWED FROM THEM. FACTUALLY SPEAKING, IT IS NOT DISPUTED THAT THE FUNDS BELONGING TO THE BENEFICIARIES WERE AVAILABLE WITH THE ASSESSEE - TRUST WHO , IN TURN , INVESTED SUCH MONIES AND EARNED INTEREST THEREON. IN TERMS OF THE MINUTES OF THE MEETING OF TH E TRUSTEES DATED 18.04.2006, A COPY OF WHICH IS PLACED AT PAGE 82 OF THE PAPER BOOK, IT IS ALSO EMERGING THAT THE TRUSTEES DECIDED TO PAY INTEREST TO THE BENEFICIARIES FOR THEIR FUNDS LYING WITH THE TRUST. IT IS ALSO EMERGING FROM THE COMMUNICATION RECEIV ED FROM ONE OF THE BENEFICIARIES, I.E. TAKSH S ILA TRUST PLACED AT PAGE 1 OF THE PAPER BOOK THAT THE BENEFICIARIES ASKED FOR INTEREST ON THEIR FUNDS LYING WITH THE ASSESSEE - TRUST, WHICH HITHERTO WAS NOT BEING INSISTED UPON. IN TERMS OF PARA 7 OF THE TRUST D EED, A COPY OF WHICH HAS 6 ITA NO. 1080/MUM/2017 M/S. B.D. FIBRE ASSOCIATES BEEN PLACED AT PAGES 2 TO 81 OF THE PAPER BOOK, ASSESSEE - TRUST THROUGH TRUSTEES IS AUTHORISED TO BORROW FUND/MONEY FOR THE PURPOSES OF THE TRUST, AND THERE IS NO PROHIBITION THAT THE FUNDS CANNOT BE BORROWED FROM THE BENEFICIARIES. FURTHER, THE TRUST DEED ALSO PROVIDES THAT THE FUNDS CAN BE BORROWED ON SUCH TERMS AND CONDITIONS, WHICH OSTENSIBLY WOULD INCLUDE PAYMENT OF INTEREST. THEREFORE, FACTUALLY SPEAKING, IT IS INAPPROPRIATE TO HOLD THAT THE TRUST IS NOT AUTHORISED TO PAY INT EREST TO THE BENEFICIARIES . HOWEVER, WE FIND THAT THE POINT WHICH IS SOUGHT TO BE MADE OUT BY THE ASSESSING OFFICER IS THAT THE BENEFICIARIES ARE NOT ENTITLED TO SEEK INTEREST FROM THE TRUST. IN OUR VIEW, THE LOWER AUTHORITIES HAVE COMPLETELY MISDIRECTED THEMSELVES IN CARRYING OUT THE DIRECTIONS OF THE TRIBUNAL. IN FACT, A PERUSAL OF PORTION OF THE ORDER OF TRIBUNAL DATED 3 1 .1 0 .2013 (SUPRA), WHICH HAS BEEN EXTRACTED BY THE CIT(A) BRINGS OUT THE REASON FOR WHICH THE MATTER WAS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER. OUR CO - ORDINATE BENCH OPINED THAT IN ORDER TO JUSTIFY THE CLAIM OF DEDUCTION OF INTEREST, IT WAS REQUI RED TO ESTABLISH THAT THE ASSESSEE - TRUST WAS UNDER AN OBLIGATION TO PAY INTEREST ON THE RELEVANT FUND S , WHICH COULD BE RECKONED WITH REFERENCE TO THE TERMS OF THE TRUST DEED. OUR CO - ORDINATE BENCH SPECIFICALLY NOTED THAT SINCE A COPY OF THE TRUST DEED WAS NOT BEFORE IT, THEREFORE, IT REQUIRED THE ASSESSING OFFICER TO ARRIVE AT SUCH A FINDING BASED ON THE TERMS OF THE TRUST DEED. AS WE HAVE SEEN EARLIER, THE TRUST DEED AUTHORISES THE TRUSTEES TO BORROW FUNDS ON SUCH TERMS AND CONDITIONS WHICH, INTER - ALIA , WOULD INCLUDE PAYMENT OF INTEREST. THE ASSESSING OFFICER HAS COMPLETELY MISGUIDED HIMSELF IN TRYING TO ASCERTAIN AS TO WHETHER OR NOT THE BENEFICIARIES WERE ENTITLED TO RECEIVE INTEREST IN TERMS OF THE TRUST DEED, WHICH WAS NEVER THE CASE OF THE REVENUE B EFORE THE TRIBUNAL. IN ANY CASE, THE ASSESSEE HAS PERSISTENTLY BROUGHT TO THE NOTICE OF THE LOWER AUTHORITIES 7 ITA NO. 1080/MUM/2017 M/S. B.D. FIBRE ASSOCIATES THAT THE BENEFICIARIES DEMANDED INTEREST ON THE FUNDS LYING WITH THE TRUST AND, THEREFORE, IN OUR VIEW, THE DEDUCTION OUGHT TO HAVE ALLOWED CONSI DERING THE MANDATE OF THE ORDER OF TRIBUNAL DATED 3 1 .1 0 .2013 (SUPRA). 9. MOREOVER, EVEN ON THE ISSUE OF HAVING A UNIFORMITY OF APPROACH BY THE REVENUE ON SAME IN THE CASES OF SIMILARLY PLACED ASSESSEES, WE DO NOT FIND ANY JUSTIFICATION FOR THE STAND OF TH E REVENUE IN THE INSTANT CASE. THE LEARNED REPRESENTATIVE HAS BROUGHT OUT THAT IN SIMILARLY PLACED SPECIFIC TRUSTS, WHICH ARE OF THE SAME GROUP AND HAVE SIMILARLY WORDED TRUST DEEDS , SIMILAR PAYMENT OF INTEREST TO THE BENEFICIARIES HAVE BEEN ALLOWED. ON THIS BASIS ALSO, WE DO NOT FIND ANY JUSTIFIABLE REASONS TO DENY THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST PAID OF ` 50,01,484/ - TO THE BENEFICIARIES. WE, THEREFORE, SET - ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 1 3 T H MARCH, 2019. SD/ - SD/ - ( AMARJIT SINGH ) JUDICIAL MEMBER ( G.S. PANNU ) VICE PRESIDENT MUMBAI, DATE : 1 3 T H MARCH, 201 9 *SSL* 8 ITA NO. 1080/MUM/2017 M/S. B.D. FIBRE ASSOCIATES COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, B BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI