LexSH. S.P. JAISWAL ETC. versus THE COMMISSIONER OF INCOME TAX
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
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B
SH. S.P. JAISWAL ETC.
v.
THE COMMISSIONER OF INCOME TAX
MARCH 6, 1997
(S.C. AGRAWAL AND G.B. PATTANAIK, JJ.]
Income TaxAct, 1961-Sections 61, 256(1) and (2),-Assessee-Manag-
ing Director--{Jave loan to his children-Assessing Offiqer taxed the assessee
for interest derived from the loan-Tribunal held it not a benami transaction,
C and interest derived from income cannot be taxed in the hands of asses-
see-On appeal, High Court held the transaction not a genuine loan-Interest
amount can be taxed in the hands of assessee-fle/d, No e"or in the judgment
of High Court-No Interference called for.
Income Tax Act, 1961-Section 256-Jurisdiction of the High Court-
D Extent of.
The appellant-assessee, Managing Director of the Company 'K'
debited certain amount to the credit of partnership firm 'M', constituted
by his children. the aforesaid amount was shown in the accounts of firm
E 'M' to have returned to the assessee, but on the very same day, it was shown
that the assessee has given the said amonnt as loan to his children. For
the assessment year 1963-64 the interest derived from the loan amount was
shown by asses see in his return bnt later a revised return was filed deleting
the aforesaid amount. The assessing Officer included the interest derived
from the loan as the income of the assessee and passed the assessment
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orders. The assessee unsuccessfully challenged the order before the In-
come Tax Appellate Commissioner and the Income Tax Appellate
Tribunal. Ultimately the assessee got the matter referred to the High Court
under sec. 256(2) of the Income Tax Act.
For the subsequent assessment years, the Assessing Officer came to
G the conclusion that interest income derived has to be assessed in the hands
of the assessee and no loan had been advanced by the assessee to his
children. The Tribunal however came to the conclusion that the transac-
tion not being benami in nature, the interest income derived cannot be said
to be income of the assessee and hence could not be taxed in the hands of
H the assessee. On appeal by the Revenue, the High Court held that the
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S.P. JAISW AL v. C.I.T.
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transaction cannot be considered to be a genuine loan and therefore, the A
interest derived from the said amount could be taxed !n the hands of the
assessee under section 61 of the Act.
Hence the present appeal.
The contention of the appellant-assessee was that a father was B
entitled to lend loan to his children without charging interest and income
accuring from such loan amount cannot be taxed in the hands of the father.
It was further contended that the interest income which was derived from
the amount of loan has already been taxed in the hands of the children
and therefore the same amount cannot be taxed twice. It was also con-
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tended that the High Court could not have, under the advisory jurisdiction
under S.256 of the Act interfered with tbe findings of the Tribunal that the
transaction was a loan transaction.
The contention of the Revenue was that the impugned transaction
which was merely a paper adjustment could not be termed as loan in any D
sense and thus would attract the provisions of sec. 61 of the Act and
consequently the income accruing therefrom would be taxed in the hands
of the assessee.
Dismissing the appeal, this Court
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HELD : 1.1. The Transaction between the assessee and the partners
of the firm constituted by his children and the so called return of money
in the books of accounts of the firm of the children and retransfer of the
same amount in the names of the children in the books of accounts of the
assessee's firm is nothing but a paper device designedly made to reduce F
the tax burden of the assessee and by no stretch of imagination can be a
loan transaction by the assessee in favour of his children. The transaction
is merely a paper transaction intended to reduce the tax liability and
cannot be a genuine loan. The High Court in the circumstances cannot be
said to have exceeded its advisory jurisdiction in answering the question G
posed. Thus there is no error in the judgment of the High Court requiring
interference by this Court. [755-A-C]
1.2. The assessee's contention that the children of the assessee have
been taxed in respect of the income accruing from the amount is of no
relevance. [754-8]
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SUPREME COURT REPORTS
(1997] 2 S.C.R.
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Income-Tax Officer v. Ch. Atchaiah, 218 I.T.R. 239, relied on.
Smt. Mohini Thapar v. CoExcerpt shown. Read the full judgment & AI analysis in Lexace.