Commissioner of Income Tax vs Three Joints International

In respect of assessment year 1986-87, this application has been filed by the revenue u/s 256(2) of the income tax Act, 1961 praying that Tribunal be directed by issue of mandamus to refer for the opinion of this Court the following questions stated to be questions of law :-

(i) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the loans utilised for construction of property owned by one of the directors of the assessee-company, was taken in connection with its business activities and, therefore, the expenditure of Rs. 88,260 belongs the interest paid on these loans was an allowable deduction under the provisions of the income tax Act, 1961 ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the expenditure of Rs. 36,000 being rent paid to the Director, Smt. Krishna Rani Chhabra, is an allowable deduction ?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that 60 per cent of the rent attributable to a building taken on rent by a Director of assessee- company and used by him for his residence, was an allowable deduction under the provisions of the income tax Act and the balance 40 per cent constituted a perquisite in the hands of the director, to be dealt with in accordance with the provisions of section 40(c) of the income tax Act ?

Question Nos. 2 and 3 are not pressed by Mr. Gupta. Regarding question No. 1, Mr. Gupta submits that since the property was let out after additional construction only with effect from January 1986 and the accounting year ends on 31-7-1985 the Tribunal committed an error in allowing deduction, subject-matter of this question. The learned counsel further submitted that the assessee was not entitled to deduction since loans were utilised for construction of the property which was not owned by the assessee but was owned by one of the directors. In respect of the first submission clause (3) of the deed of lease shows that Smt. Krishna Rani Chhabra was entitled to enhanced rent of Rs. 3,000 p.m. for the additional construction from the date of the start of the construction and not from the date of the commencement of tenancy. Regarding the? other contention of Mr. Gupta we may only notice that after noticing the facts the Tribunal has arrived at a finding of fact that in the process of obtaining loans from the bank and carrying out the construction for and on behalf of the director was, in fact, a business proposition which affected the company to a large extent. It has been found that the company had sublet the premises to German Embassy at a rental of Rs. 25,000 p.m. as against the rental of Rs. 3,000 p.m. paid by it to Smt. Krishna Rani Chhabra, thus substantially benefiting the company. This is a pure finding of fact, which has not been challenged as perverse. In any case question proposed is a question of fact. The petition is, accordingly, dismissed.