Law:

Section:

Section 40(a)(i) of the Income-tax Act 1961 - Business disallowance - Interest paid outside India - Assessment year 1990-91 - Assessee-firm was carrying on business of importing timber and dealing in wholesale - Assessing Officer denied claim for deduction of interest payment by assessee to foreign banker from business income under section 40(a)(i) as no tax was deducted at source - On appeal, assessee contended that payment represented finance charges at a certain percentage of supply bill received by it and, hence, formed part of purchase price for it - Commissioner (Appeals) allowed part of amount of interest payment as deduction - On second appeal, assessee produced an extract from Karur Vysya Bank showing bill amount and interest paid to bank in addition to submissions made before Commissioner (Appeals) - Tribunal allowed assessee's appeal - It presumed that bank reimbursed amount already paid by it to foreign exporter and collected bill amount along with interest after due date of bill - However, there was absolutely no material to show nature of transaction which assessee had with foreign exporter, and that interest paid to Karur Vysya Bank had any connection with interest debited to profit and loss account of assessee of an amount which assessee owed to collecting foreign banker - Whether, in absence of relevant material, Tribunal was not justified in granting relief on basis of presumption that Karur Vysya Bank had got reimbursement from assessee of bill amount along with interest due thereon for payment which said bank made to foreign exporter - Held, yes FACTS The assessee-firm was carrying on the business of importing timber and dealing in wholesale. For the assessment year 1990-91, it claimed deduc-tion of interest payment to a foreign banker from its business income. It was contended before the assessing authority that interest payment was towards amount lent and also claimed that since money had been lent outside India, interest thereon also accrued outside India and, therefore, was not taxable in India thereby requiring deduction of tax at source. The Assessing Officer denied the claim under section 40(a)( i) as required tax was not deducted at…

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