1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.365 OF 2005 The Commissioner of Income Tax ..Appellant. V/s. M/s. Sudhakoshal Investment Co. P. Ltd. ..Respondent. Mr. J.S. Saluja for appellant. None for respondent. CORAM : DR. D.Y.CHANDRACHUD AND J.P.DEVADHAR, JJ. DATED : 11TH JANUARY, 2010 P.C. :- 1. The following questions of law have been formulated in the appeal by the revenue against the judgment of the Income Tax Appellate Tribunal dated 11th November, 2004 :- a) Whether on the facts and circumstances of the case and in law, the Tribunal was right in observing that the transaction of lease and loan between the assessee and its sister concern and the bank as composite transaction, when there was no agreement between the assessee and its sister concern regarding the loan transaction ? b) Whether on the facts and circumstances of the case, the Tribunal was right in deleting the addition of Rs.11,49,658/- made by the assessing officer ? 2. The appeal pertains to the assessment year 1995-96. 3. On 1st September, 1989 the assessee entered into a lease 2 agreement with its associate concern by which the assessee obtained on lease certain premises for an initial term of five years and six months, renewable thereafter, on a lease rent of Rs.4 per sq. ft. per month. On the same day, the assessee in turn sub-leased the property to Union Bank of India on a lease rent of Rs.10/- per sq. ft. per month. The bank granted a loan in the amount of Rs.1.20 crores to the assessee on an interest at 18% p.a. which was passed on by the assessee to the associate concern. The interest payable by the assessee on the loan was Rs.19.05 lakhs whereas, the assessee received an amount of Rs.7.55 lakhs from its associate concern towards interest. The assessing officer disallowed the interest expenditure of Rs.11.49 lakhs representing the difference between the interest received and what was paid by the assessee. The Commissioner of Income Tax (A) deleted the same. 4. From the judgment of the Tribunal, it appears that the transactions of the lease and the loan were found to be inter-connected. The assessee obtained a lease from its associate concern at Rs.4/- per sq. ft. and sublet the premises at Rs.10/- per sq. ft. to the Bank. The associate concern had knowledge of this fact. The Tribunal held that the composite transaction would not have been possible unless the assessee had agreed to pass on the loan obtained from the bank to its associate concern at a lower rate, thereby compensating partly the loss on account of lease rent. The Directors of the associate concern had submitted a personal guarantee to the bank to secure the repayment of the loan. On these facts, the Tribunal came to the conclusion that the transaction of the lease and the loan was inter-connected 3 and a composite transaction. This finding of fact has been arrived at on the basis of the material on record. The Tribunal arrived at a finding of fact that the transaction was a composite transaction. It is not necessary for this Court to entertain the appeal under section 260A of the Income Tax Act, 1961 since it does not raise any substantial question of law. The appeal shall accordingly stand dismissed. (J.P.DEVADHAR, J.) (DR. D.Y.CHANDRACHUD, J.)