Notional interest under income tax
ajay kumar sarawogi
(Querist) 21 August 2013
This query is : Resolved
if asseessee gives interest free loans to relatives and non relatives can ITO add notional interest on such loans to income
of the asseessee and tax it.
ajay sethi
(Expert) 21 August 2013
raise query in CA club India.com
R.K Nanda
(Expert) 21 August 2013
contact CA club india.com.
Rajendra K Goyal
(Expert) 21 August 2013
Ahmedabad Mirror; Date: Jul 4, 2011; Section: You; Page: 19
Gauhati High Court in the case of ‘Highways Construction Company Pvt. Ltd. vs. CIT’ 199 ITR 702(Gau.), which has been followed in the case of ‘Keshrichand Jaisukhlal vs. CIT’ 122 Taxman 307(Gau.).
In the said judgement the Hon’ble High Court has clearly held that, “if the taxpayer had not bargained for interest or had not collected interest, we fail to see how the Income tax Authorities can fix a notional interest as due or collected by the assessee. Our attention has not been invited to any provision of the Income-tax Act empowering Income-tax authorities to include in the income, interest which was not due or not collected”.
‘ITO v/s Nalinbhai M Shah 93 TTJ 107 (Ahd)’ wherein it has clearly held that “a taxpayer is entitled to use his capital as per his desire.”
The tribunal went on to hold that in a simple case of interest-free loans and advances given by a taxpayer to his relatives, Sec 60 is not applicable since it is not a case of transfer of income without transfer of assets. In this regard ITAT usefully referred to the judgment of Gujarat High Court in the case of ‘CIT v/s Manharlal Girdharlal Doshit’ 231 ITR 89 (Guj). ITAT further noted that this was “not a case where the taxpayer had diverted funds out of a borrowing on which he was paying interest and therefore, not a situation which called for disallowance of any interest paid”.
Raj Kumar Makkad
(Expert) 21 August 2013
If interest is earned the same shall become taxable otherwise there is no question or imposing taz on presumption.
