Commissioner of Income Tax vs Mrs. Rama Munjal

N.K. Agrawal, J.—These are two petitions under s. 256(2) of the IT Act, 1961 (for short, the ''Act'') by the CIT seeking a direction to the Appellate Tribunal, Chandigarh (for short, the ''Tribunal'') to refer to this Court the following identical question of law relating to the asst. yrs. 1985-86 and 1986-87 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing interest as claimed by the assessee at higher rate on borrowings to the nominal fixed expected return on investments made in purchase of shares out of such borrowings in family concerns ignoring the findings of Hon''ble Supreme Court in McDowell and Co. Ltd. Vs. Commercial Tax Officer, and Commissioner of Income Tax Vs. Ali Sons Export Co., "

The assessee derived income as a partner in a partnership firm, M/s Munjal Castings, Ludhiana, and also from property, besides earning interest and dividends. She showed payment of interest amounting to Rs. 14,574 on the borrowings @ 16 per cent per annum in the asst. yr. 1985-86. Such borrowings were made for the purchase of 4 per cent preference shares of M/s Rockman Cycle Industries, Ludhiana. Since a return @ 4 per cent per annum only was expected from the shares, the AO disallowed interest amounting to Rs. 8,669, being interest in excess of 4 per cent on the borrowings. While making assessment for the next asst. yr. 1986-87, the AO, for similar reasons, disallowed interest amounting to Rs. 5,652.

In the appeal filed by the assessee, the Dy. CIT declined to interfere and affirmed the order of the AO. In further appeal, the Tribunal accepted the assessee''s plea and decided the matter in her favour following its view earlier taken in the case of Pankaj Munjal Family Trust, Ludhiana and certain other assessees belonging to the same group.

Shri R. P. Sawhney, learned senior counsel for the Revenue, has argued that the Tribunal has rejected the application filed by the Revenue seeking reference of the question under s. 256(1) of the Act on the sole ground that the application seeking reference of a similar question in the case of Pankaj Munjal Family Trust for the asst. yrs. 1986-87 and 1988-89 had been rejected by it earlier.

He pointed out that, on a direction from a Bench of this Court, the Tribunal thereafter submitted a statement of the case and referred to this Court on a similar question of law relating to various assessment years in the case of Pankaj Munjal Family Trust.

Since a similar question of law is already before this Court in the case of another assessee, we find it appropriate to direct the Tribunal to draw a statement of the case and refer to this Court the following question of law relating to the asst. yrs. 1985-86 and 1986-87 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing deduction of interest in excess of 4 per cent per annum on the borrowings made by the assessee for the purchase of shares of the family concern on which the fixed return of income was expected to be 4 per cent only ?"

The petitions stand disposed of in the above terms.