HIGH COURT OF
Diversified Global Finlease Ltd.
v.
Commissioner of Income-tax
MADAN B. LOKUR AND S. MURALIDHAR, JJ.
IT APPEAL NO. 206 OF 2007
August 13, 2007
Section 143 of the Income-tax Act, 1961 - Assessment - Additions to
income - Assessment year 1997-98 - Assessee was a lease finance company - It
had paid certain amount to two persons which according to it was paid for
rendering services - Assessee had also paid excess salary to some of its
employees who were relatives of director - Assessing Officer took notional
interest on amounts given to two persons and added same to income of assessee -
He also disallowed part of amount paid towards excess salary - Whether since
assessee neither furnished any materials or documents to show that said two parties
rendered services to it nor established reasonableness of payment of excess
salary, Assessing Officer was justified in his action - Held, yes
The assessee was a lease finance company. It had paid certain amount to ‘A’ and ‘M’ which according to it was paid for services rendered for raising further capital through public issue, which however, did not materialize. The Assessing Officer was of the view that the payment made to the two persons was actually in the nature of advances and not any payment for services rendered. Therefore, the Assessing Officer took the notional rate of interest of 12 per cent and calculated the notional interest on the amounts given to them. The Assessing Officer also noticed that the assessee had paid excess salary to some of its employees who were relatives of its director. The Assessing Officer allowed only a part of the amount. On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer as regards the addition of notional interest but as regards salaries, the Commissioner (Appeals) reduced the addition. The Tribunal also dismissed the assessee’s appeal as well as the rectification application.
On appeal:
It had been found by the appellate authorities that the assessee was a
financing company and engaged in the business of financing, sale and purchase
of shares. There was no reason why the
assessee had advanced loans to the two persons without charging any interest. The assessee was also unable to furnish any
materials or documents to show that the said two parties had rendered services
to the assessee company. Thus, there was
no merit in the assessee’s submission the payments were made to the persons for
their services rendered. [
With regard to excess salaries paid to some of its employees, the
assessee had not brought any material on record to establish the reasonableness
of payment of excess salary to some of its employees who were relatives of its
Director. [
Thus, no substantial question of law arose in the appeal. [