M/S.MATHER PROJECTS V. THE COMMISSIONER OF INCOME TAX

ITA/21/2008

AI Insights

The case involves M/s. Mather Projects and Constructions, which appealed against the disallowance of interest on borrowed capital by the Income Tax Tribunal. The Tribunal had reversed the decision of the first appellate authority, leading to the current appeal. The primary issue was whether the interest paid on borrowed funds, which were partly used for personal investments by the partners and not for business purposes, should be allowed under Section 36(1)(iii) of the Income Tax Act. The High Court of Kerala, referencing a similar case (Commissioner of Income Tax v. V.A.Baby), upheld the Tribunal's decision, agreeing that the funds were not used for business purposes and thus the interest on such borrowings was rightly disallowed.

• Counselvise Citation: [2009] 140 COUNSELVISE.COM (IT) 763358 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 12-10-2009
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v. V.A.Baby (254 ITR 248), S.A.Builders Ltd. v. Commissioner of Income Tax (Appeals) (288 ITR 1)
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: GEORGE K GEORGE; P K R MENON; JOSE JOSEPH
• Assessee Lawyers: T M SREEDHARAN; V P NARAYANAN
• Keywords: Assessment; Borrowed capital; Disallowance of interest; Personal use; Siphoning of funds
• Section: 36 (1) (iii)

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN MONDAY, THE 12TH OCTOBER 2009 / 20TH ASWINA 1931 ITA.No. 21 of 2008() -------------------- ITA.468/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT ----------------------------- M/S. MATHER PROJECTS AND CONSTUTIONS, MATHER SQUARE, TOWN RAILWAY STATION ROAD, COCHIN-18, REP. BY ITS MANAGING PARTNER, SIR. MOHAMMED RAFI MATHER. BY ADV. SRI.T.M.SREEDHARAN SRI.V.P.NARAYANAN RESPONDENT(S): RESPONDENT ------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. ADV. SRI.GEORGE K. GEORGE, SC FOR IT SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON ALONG WITH ITA NO. 22 OF 2008 ITA NO. 23 OF 2008 & 32 OF 2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: (CR) C.N. RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. ---------------------------------------- I.T.A Nos.21, 22, 23 & 32 of 2008 ---------------------------------------- Dated, the 12th day of October, 2009 JUDGMENT Ramachandran Nair, J. Even though several questions are raised in the connected appeals filed by the very same assessee, we find only one issue arises for consideration from the orders of the Tribunal which is disallowance of interest paid on borrowed capital made in the assessment confirmed by the Tribunal after reversing the order of the first appellate authority. 2. We have heard Sri T.M.Sreedharan appearing for the appellant and the Standing Counsel for the respondent. 3. On facts, we find that the assessee borrowed Rs.1.5 crores from HUDCO and has paid interest for the assessment years as follows: I.T.ANos.21,22,23 & 32/08 -:2:- Sr. No. Asst.Year Interest paid to HUDCO (Rs.) 1 1998-99 18,43,170 2 1999-2000 21,90,689 3 2000-01 16,29,123 4 2001-02 13,79,986 The Tribunal found that out of the borrowed funds, Rs.25 lakhs each was taken by each of the partners of the appellant/assessee for purchase of shares of another company. In addition to that, the partners siphoned of funds of the firm for their personal purposes. The father of the partners also took Rs.10 lakhs from the firm for investing in the shares of the company. Further finding of the Tribunal is that the capital account of the partners were showing debit balance of Rs.60 lakhs in the assessment year 1998-99 and also in the other years. Since funds borrowed were siphoned of by the partners for their personal purposes, the assessing authority noticed that the borrowed capital was not used for I.T.ANos.21,22,23 & 32/08 -:3:- business purposes and therefore, assessee is not entitled to the benefit under Section 36(1)(iii) of the Income Tax Act. In fact, disallowance is only for proportionate interest attributable to the amount siphoned of by the partners for their purposes and also for the amount withdrawn from their capital account. The Tribunal decided the case by following the judgment of this Court in Commissioner of Income Tax v. V.A.Baby ( 254 ITR 248). We find that the facts are identical and therefore, we do not find any justification to deviate from the view taken by the Tribunal based on the judgment above referred. Even though the counsel for the appellant relied on the decision of the Supreme Court in S.A.Builders Ltd. v. Commissioner of Income Tax (Appeals) (288 ITR 1), we find that the said decision has no application because in that case it was transfer of funds to sister concerns, probably for business purposes, but in these cases it is siphoning of borrowed funds of the assessee by its partners for their personal use. We do not think that the decision of the Supreme court helps I.T.ANos.21,22,23 & 32/08 -:4:- the assessee. Further we find that the Tribunal's decision is based on findings on facts that borrowed funds of Rs.1.5 crores are taken away by the partners of the assessee for their personal purposes. Therefore, there is no substantial question of law arising from the Tribunal's order and the appeals are accordingly dismissed. C.N.RAMACHANDRAN NAIR JUDGE V.K.MOHANAN, JUDGE kvm/- I.T.ANos.21,22,23 & 32/08 -:5:- V.K.MOHANAN, J. O.P.No. JUDGMENT Dated:.. "