JUDGMENT
Arijit Pasayat, C.J.
1. The following question has been referred for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 (in short
“the Act”), by the Income-tax Appellate Tribunal, Delhi Bench-D (in short “the Tribunal”) :
“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in deleting the disallowance of Rs. 51,528 made by the Income-tax Officer, being the difference between 12 per cent., i.e., the rate of interest which was charged by the assessed on the advances made to the three concerns, and 16 per cent., i.e., the rate of interest paid by the assessed on its own borrowings during the assessment year 1976-77 ?”
2. The dispute relates to the assessment year 1976-77 and the controversy lies in a very narrow compass.
3. The background facts, in a nutshell, are as follows :
The assessed is a private limited company deriving income from the manufacture and also of knitted fabrics made of nylon and art silk yam. During the assessment year in question the assessed had charged interest at 12 per cent. from three parties, to whom certain advances were made. In the earlier assessment year, i.e., 1975-76, the assessed had not charged any interest from these parties. Therefore, proportionate interest was disallowed in respect of such advances and the disallowance was upheld finally by the Tribunal. For the assessment year in question, the Income-tax Officer (in short “the ITO”) found that the assessed had paid interest at 16 per cent. on its borrowed funds. Therefore, the difference between the two figures, i.e., 12 per cent., the rate at which the assessed charged interest on advances made to three parties and 16 per cent., i.e., the rate at which the assessed paid interest on its own borrowings, was disallowed. The matter was carried in appeal before the Commissioner of Income-tax (Appeals) (in short “the CIT(A)”). The said authority upheld the disallowance. The assessed preferred an appeal before the Tribunal. It was held by the Tribunal that the interest paid cannot be the subject-matter of the test of reasonableness and hence the Income-tax Officer was in error to determine as to what rate of interest should have been charged. The Tribunal further held that the borrowing transactions were not unreal and that the capital was borrowed by the assessed for the purpose of business and the amount of interest was paid as claimed, and therefore there was no scope for determining the rate of interest which would be reasonable. On being moved for reference the question as set out above has been referred for the opinion of this court.
4. We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessed in spite of notice. Learned counsel for the Revenue submitted that having held that part of the interest was disallowed for the immediate preceding assessment year, the Tribunal should not have taken a different view in the year under consideration.
5. We find that the Tribunal has recorded a factual conclusion that the borrowing transactions were not unreal and the capital borrowed was used for the purpose of business and in fact the interest had been paid. That being the position no question of law arises. Accordingly, we decline to answer the question referred.
6. Reference is disposed of accordingly.