Ganapathy Lakshmanan, Kodaikanal V. DCIT International Taxation, Madurai

ITA 2378/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5616 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 27-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN IRS
• Assessee Lawyers: G BASKAR
• Keywords: Charitable institution; Notional interest

Judgement Text

, . , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . , ! ' [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMB ER ] ./I.T.A. NO.2378/MDS/2017 / ASSESSMENT YEAR : 2013-2014. SHRI. GANAPATHY LAKSHMANAN, NO.11/49, HOTEL BALA, WOOD VILLE ROAD, KODAIKANAL 624 101. [ PAN ABWPL 2423R ] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, MADURAI 625 002. ( #$ / APPELLANT) ( %&#$ /RESPONDENT) / APPELLANT BY : SHRI. G. BASKAR, ADVOCATE /RESPONDENT BY : SHRI. B. SAGADEVAN, IRS, JCIT. /DATE OF HEARING : 12-12-2017 ! /DATE OF PRONOUNCEMENT : 19-12-2017 ' / O R D E R IN THIS APPEAL FILED BY THE ASSESSEE, IT IS AGGRI EVED ON AN ADDITION OF RS.44,34,939/- AS NOTIONAL INTEREST ON A SUM OF RS.5,21,75,755/- ADVANCE BY ME TO ONE M/S. BALA CAR ES FOUNDATION TRUST. 2. FACTS APROPOS ARE THAT , A NON RESIDENT INDIAN HAD FILED HIS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR D ISCLOSING NIL ITA NO. 2378/MDS/2017 :- 2 -: INCOME. ASSESSEE IS A US CITIZEN AND A DOCTOR P RACTICING IN USA. HE WAS HAVING A FEW BUSINESS IN INDIA CALLED HOTEL BAL A, KAVI BALA CAF AND HOTEL BALA (TRAVELS) IN KODAIKANAL. DURING THE RELEVANT PREVIOUS YEAR ASSESSEE HAD GIVEN A SUM OF RS.4,03,82,555/- FROM HIS PERSONAL ACCOUNT AND A SUM OF RS.1,17,93,200/- FROM THE ACCO UNT OF HOTEL BALA WHICH WAS HIS PROPRIETORSHIP CONCERN, TO M/S. SRI B ALA MEDICAL CENTRE. THE SAID M/S. SRI BALA MEDICAL CENTRE WAS RUN BY BA LA CARES FOUNDATION, A PUBLIC CHARITABLE TRUST REGISTERED U/ S.12AA OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). ASSESSEE WAS PUT ON NOTICE AS TO WHY NOTIONAL INTEREST ON SUCH AMOUNTS ADVANCED TO M /S. SRI BALA MEDICAL CENTRE SHOULD NOT BE CONSIDERED AS ITS INCO ME. AS PER THE LD. ASSESSING OFFICER, ASSESSEE OUGHT HAVE CHARGED INTE REST AT 8.5% BEING PRIME LENDING RATE APPLIED BY THE STATE BANK OF IND IA. REPLY OF THE ASSESSEE WAS THAT THE TRUST M/S. SRI BALA MEDICAL C ENTRE WAS CREATED BY HIM FOR DOING CHARITABLE ACTIVITIES IN HIS VILLA GE CALLED KAVUNJI NEAR KODAIKANAL. AS PER THE ASSESSEE THE SAID TRUST WA S CONSTRUCTING A FULL FLEDGED HOSPITAL. CONTENTION OF THE ASSESSEE WAS THAT AMOUNT WERE TREATED AS LOAN BY M/S. SRI BALA MEDICAL CENTRE, SI NCE THE TRUST M/S.BALA CARES FOUNDATION, RUNNING THE HOSPITAL, H AD NOT RECEIVED FOREIGN CONTRIBUTION (REGULATION) ACT, 2010 PERMIS SION. CONTENTION OF THE ASSESSEE WAS THAT HOSPITAL WAS UNDER CONSTRUCTI ON AND ASSESSEE HAD NO INTENTION OF GETTING ANY INTEREST FROM M/S . BALA CARES ITA NO. 2378/MDS/2017 :- 3 -: FOUNDATION TRUST. HOWEVER, LD. ASSESSING OFFICER D ID NOT ACCEPT THE ABOVE CONTENTION. ACCORDING TO HIM, ASSESSEE WOULD HAVE EARNED INTEREST OF RS.44,34,939/- AT THE RATE OF 8.5% ON T HE SUM OF RS.5,21,75,755/- ADVANCED BY HIM TO SRI BALA MEDICA L CENTRE. AN ADDITION OF RS.44,34,939/- WAS MADE. 3. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE LD . COMMISSIONER OF INCOME TAX (APPEALS). CONTENTIONS RAISED BEFORE THE LD. ASSESSING OFFICER WERE REITERATED. FURTHER, AS PER THE ASSESSEE THE ADDITION WAS ON A HYPOTHETICAL INCOME. HOWEVER, L D. COMMISSIONER OF INCOME TAX (APPEALS) DID NOT ACCEPT THESE CONTENTIO NS. ACCORDING TO HIM, ASSESSEE HAD ADVANCED HUGE MONEY TO THE TRUST AND M/S.HOTEL BALA HIS PROPRIETORSHIP HAD GIVEN RS.1,17,93,200/- AS INTEREST ON ITS BORROWINGS. ACCORDING TO HIM, ASSESSEE HAD TRANSF ERRED FUNDS ON WHICH HE WAS EARNING INTEREST @8.5%, TO THE TRUST, THEREBY DEPRIVING HIMSELF OF LEGITIMATE INTEREST DUE TO HIM. HE HELD THAT LD. ASSESSING OFFICER WAS JUSTIFIED IN MAKING THE ADDITION OF RS .44,34,939/-, BEING NOTIONAL INTEREST @8.5% ON RS.5,21,75,755/-. 4. NOW BEFORE ME, THE LD. AUTHORISED REPRESENTATIVE S TRONGLY ASSAILING THE ORDERS OF THE LOWER AUTHORITIES SUBM ITTED THAT TAX COULD BE LEVIED ONLY ON REAL INCOME AND NOT ON NOTIONAL INCOME. ACCORDING ITA NO. 2378/MDS/2017 :- 4 -: TO HIM, TOTAL BORROWINGS OF THE ASSESSEE AS ON 3 1.03.2012 WAS ONLY RS.5,05,504/- AND BORROWINGS AS ON 31.03.2013 WAS ONLY J11,19,887/-. AS PER THE LD. AUTHORISED REPRESENT ATIVE AGAINST THE ABOVE LOANS, ASSESSEE HAD A CAPITAL OF J2,46,32,99 1/- AS ON 31.03.2012 AND J6,88,32,699/- AS ON 31.03.2013 IN M /S. HOTEL BALA AND OTHER CONCERNS RUN BY HIM. ACCORDING TO HIM, J UST BECAUSE ASSESSEE ADVANCED INTEREST FREE LOANS FROM HIS OWN SOURCE, NOTIONAL ADDITION OUGHT NOT HAVE BEEN MADE. 5. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTED THAT ASSESSEES OWN CAPITAL IN VARIOUS CONCERNS RUN BY HIM IN INDIA AS ON 31.03.2012 CAME TO RS.2,46,32,991/-, AND AS ON 31.03.2013 CAME TO R S.6,88,32,699/-. AGAINST THESE, THE INTEREST BEARING LOANS RAISED BY THE ASSESSEE CAME TO RS.5,05,504/- AND RS.11,19,887/- ONLY RESPECTIVE LY. THUS, LOANS RAISED BY THE ASSESSEE WERE ONLY A MINUSCULE PERCE NTAGE OF ASSESSEES OWN CAPITAL. APART FROM THIS, ASSESSEE WAS A NON RESIDENT INDIAN AND THE SUM OF J4,03,82,558/- OUT OF THE TO TAL AMOUNT OF RS.5,21,75,755/- WAS GIVEN BY THE ASSESSEE FROM HI S OWN ACCOUNT AND NOT FROM ANY OF HIS BUSINESS CONCERN. IN MY OPINIO N, ASSESSEE WAS ITA NO. 2378/MDS/2017 :- 5 -: FREE TO USE HIS OWN FUNDS FOR ANY LAWFUL PURPOSE A ND WAS NOT OBLIGED UNDER LAW TO CHARGE INTEREST ON ANY LOANS GIVEN BY HIM. IT IS LEFT FOR THE ASSESSEE TO DECIDE HOW TO UTILIZE HIS OWN FUNDS . IN MY OPINION, LOWER AUTHORITIES FELL IN ERROR FASTENING AN INCOME WHICH NEVER AROSE TO THE ASSESSEE. NEITHER THE TRUST HAD PAID ANY IN TEREST TO THE ASSESSEE NOR THE ASSESSEE RECEIVED ANY INTEREST. THERE IS NO CASE FOR THE REVENUE THAT THE TRUST WAS LEGALLY LIABLE TO PAY INTEREST AT 8.5% TO THE ASSESSEE ON THE FUNDS GIVEN BY HIM. I AM OF THE OPINION THAT NOTIONAL INTEREST WAS UNFAIRLY ADDED. SUCH AD DITION STANDS DELETED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALLOWE D. ORDER PRONOUNCED ON THURSDAY, THE 19 TH DAY OF DECEMBER, 2017, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED:19TH DECEMBER, 2017 KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF