K. Raviraja Pandian, J.
1. At the instance of the revenue, the following question is referred to this Court for our opinion:
'Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law and had sufficient materials to hold that the question of deduction of tax at source does not arise from the method of payment present in the case of assessee?'
2. The facts as stated in the statement of case are,that the assessee is a partnership firm, carrying on business of importing timber and dealing in wholesale. While completing the assessment for the assessment year 1990-91, the assessing officer denied the claim for deduction of interest payment of Rs.3,22,438/- to foreign banker from the business income under Section 40(a)(i) of the Income-tax Act, 1961 as the required tax was not deducted at source under Chapter XVII B of the Income-tax Act. On appeal, the Commissioner of Income-tax (Appeals) allowed the payment of interest in a sum of Rs.1,06,296/- and for rest of the amount rejected the appeal. On further appeal by the assessee, the Appellate Tribunal allowed the appeal and directed the assessing officer to allow the deduction of interest, as the provisions of tax deducted at source are not applicable to this case. Hence the reference.
3. The learned counsel appearing for the revenue has contended that the assessee before the assessing authorities by his letter dated 26.12.1991 contended that as per the provision regarding deduction of tax at source stipulated under Section 40(a)(i) of the Income-tax Act, tax has to be deducted only if the interest payable outside India is chargeable to tax in India and further claimed that since the money has been lent outside India, the interest also accrued outside India, and therefore the amount was not taxable in India. Therefore, the question of deduction at source on such interest payment did not arise. However, on appeal before the Commissioner of Income-tax (Appeals), the stand of the assessee was that the expenditure debited under the head of 'interest' was finance charges to Grindlays Bank, Madras at a certain percentage of supply bills received by the appellant and thus, the finance charges formed part of the purchase price for the appellant. On further appeal, with these available facts and along with the one more feature of production of an extract from Karur Vysya Bank Limited, at the appellate stage, the Tribunal presumed that the Bank reimbursed with the amount already paid by it to foreign exporter of timber and the bank collected the bill amount along with interest after the due date of the bill. There is absolutely no material whatsoever is made available by the assessee to come to the conclusion that the extract of Karur Vysya Bank taken note of by the Tribunal is pertaining to the transaction of import, which is the basis for the claim of payment of interest, and there is considerable confusion on the part of the assessee in claiming deduction in respect of a sum of Rs.3,17,805/- towards interest payment as stated above and thus the relief granted by the Appellate Tribunal is without any material. The reliance of the circular of the Board under circular No. 65 dated 2.9.1971 also would not in any way give a helping hand to the Tribunal to come to the conclusion.
4. Mr. Janakiraman, learned counsel for the assessee argued for sustaining the order of the Tribunal on the ground that the Tribunal, the ultimate fact finding authority recorded a finding in favour of the assessee, which requires no reconsideration.
5. We heard the argument of the counsel for either side and perused the materials on record.
6. After perusing the material, at the request of the counsel for the assessee, we granted sufficient time for production of the extract of Karur Vysya Bank so as to enable the assessee to satisfy this Court as to the applicability of the said extract of the transactions of the case and correctness of the finding as arrived at by the Tribunal as there was considerable discrepancies with regard to transactions as narrated above. But unfortunately, the assessee was not able to secure anything from the Bank, as assured by the counsel, to strengthen his case. Hence, with the available material, we proceeded to decide the case on merits.
7. The learned counsel appearing for the revenue is very much correct in pointing out the changing of stand of the assessee as to the nature of amount claimed ie., interest before the authorities concerned, in the sense, that before the assessing authority, the interest has been characterised as interest on payment of amount lent. It is clear from the assessment order, which proceeds as follows:
'... The assessee in his letter dated 26.12.91 contended that that as per the provision regarding deduction of Tax at Source stipulated under Sec. 40(a)(i), tax is to be deducted only if the interest payable outside India is chargeable to tax in India. The assessee has also claimed that since the money has been lent outside India the Interest also accrues outside India and therefore the amount is not taxable in India.'
8. It is rather strange to note that before the Commissioner of Income-tax (Appeals), the stand of the assessee was totally different, the relevant portion of paragraph No. 4 of the first appellate order, which is extracted as follows:
'The appellant's representative objected to it on the ground that the expenditure debited under the head, 'interest' was finance charges to Grindlays Bank, Madras, at a certain percentage of supply bills, received by the appellant and hence, the finance charges formed part of the purchase price for the appellant.'
9. As stated already, the Tribunal has come to the conclusion that the Karur Vysya Bank paid the purchase amount to the foreign seller on behalf of the assessee and the said Karur Vysya Bank got the amount reimbursed, which the Bank paid to the foreign exporter along with interest after the due date of the bill, which is clear from the following portion of the Tribunal order.
'We have duly considered the rival submissions. The clarification given by the Board is quite clear. But it is not quite clear to us whether the assessee's case falls under Para 1 or para 2 of the clarification cited. No doubt, the extract of the Karur Vysya Bank Ltd. shows not only the bill amount but also the interest paid to the bank. Therefore, it is presumed that the bank is reimbursed with the amount already paid by it to foreign exporter of timber and the bank is collecting the bill amount along with interest after the due date of the bill.'
10. Having regard to the above extracts, the one and only conclusion that could be reached by the Court is that the assessee has not produced before the authorities any material about the facts as to whether the interest has been paid by the assessee for the amount due to the foreign seller of timber or as to whether the usance bills or Hundies are negotiated or discounted by the foreign supplier and to which of the Bank the assessee has paid the interest in respect of the amount paid by the Bank towards the discounting of usance bills or hundies by the foreign exporter and there are lot of variance in the stand and also the Bank through which the bills are discounted or negotiated.
11. From the materials made available before us, we are of the considered view that there is absolutely no material, much less, sufficient material available for the Tribunal for regarding the payment of interest towards the sale price of timber. The conclusion arrived at by the Tribunal is based on presumption as extracted above. In a taxing statute, there cannot be presumption as to the facts. The person, who claims the benefit under the provisions of the Act, has to prove before the authorities that he is entitled to the benefit of deduction by placing proper and sufficient material to that effect. In the absence of any such materials, the authorities under the Act cannot grant any relief based on presumption. We find that the Income-tax Officer has found from the profit and loss account of the assessee company that the assessee had debited to its profit and loss account a sum of Rs.3,17,805/- being the interest amount which the assessee owed to the collecting foreign banker. The assessee has not produced any material to disprove its own entry or to show that the interest was not paid to a non-resident to take it out of the ambit of section 40(a)(i) of the Income-tax Act inasmuch as the said provision provides that the interest shall not be a deductible item in the computation of total income if the tax payable has not been deducted at source under Chapter XVII-B of the Income-tax Act. It is also relevant to mention that under section 9(1)(v) of the Income-tax Act, the interest income payable by a resident is deemed to accrue or arise in India and unless the tax has been deducted at source as provided in Chapter XVII-B of the Income-tax Act, the interest paid is not deductible. The case put forward by the assessee before the Appellate Tribunal was that the amount was paid to the Karur Vysia Bank and the Appellate Tribunal proceeded on the presumption that the Bank got reimbursement of the amount already paid by it to the foreign exporter and the bank collected the bill amount along with interest after the due date of the bill. We find that there is absolutely no material for the Appellate Tribunal to record such an observation as the assessee has failed to prove that the bill amount was credited to the supplier's account without waiting for realisation of bill on due date. Further we find that there is absolutely no evidence to show the nature of the transaction the assessee had with the foreign exporter. There are also no materials to indicate that the amount of interest paid to the Karur Vysia Bank had any connection or link with the interest debited to the profit and loss account of the assessee of a sum of Rs.3,17,805/- which the assessee owed to the collecting foreign banker. Hence, we are of the considered view that the Tribunal has committed a serious error in presuming that the Karur Vysya Bank has got reimbursement from the assessee the bill amount along with interest due thereon for the payment which the Bank made to the foreign exporter.
12. Hence, the question is answered in the negative against the assessee and in favour of the revenue.