Shri Sunil Koliyot27, Valluvar Streetarumbakkamchennai 600 016 v. The Income Tax Officerward V (3)Chennai 600 034

In the High Court of Judicature at Madras Dated : 22.8.2007 Coram :- The Honourable Mr.Justice K.RAVIRAJA PANDIANandThe Honourable Mrs.Justice CHITRA VENKATARAMAN Tax Case (Appeal) No.1023 of 2007 Shri Sunil Koliyot27, Valluvar StreetArumbakkamChennai 600 016. Vs .. Appellant The Income Tax OfficerWard V (3)Chennai 600 034. .. Respondent TAX CASE (APPEAL) under Section 260A of the Income Tax Actagainst the order of the Income Tax Appellate Tribunal Madras 'C'Bench dated 16[th][t] March 2007 made in I.T.A.No.1664/2004 for theassessment year 1997-98 against the order of Deputy Registrar,Income Tax Appellate Tribunal, 'C' Bench Madras dated 16.3.2007 inITA.1664/Mds/2004 and against the order of Commissioner of IncomeTax (Appeals)VIII, Madras-34 dated 11.3.2004 in IT/AppealNos.23/2003-04 arising out of the assessment order of Income TaxOfficer, ward -V, (3) Madras-34 dated 28.3.2003 in PAN/GIR No. . For Appellant : Mr.R.Pradeep for Ms/.Subbaraya Aiyar For Respondent:- Mr.J.Naresh KumarStanding Counsel for ITJUDGMENT JUDGMENT OF THE COURT WAS DELIVERED BY K.RAVIRAJA PANDIAN,J The appeal is filed by the assessee against the order of theIncome Tax Appellate Tribunal Madras 'C' Bench made inI.T.A.No.1664/2004 dated 16.3.2007. The relevant assessment yearis 1997-98. The substantial question of law formulated forentertainment of the appeal is as follows:- https://hcservices.ecourts.gov.in/hcservices/ "Whether on the facts and circumstances ofthe case, the Tribunal was right in law inholding that the loss incurred by subscribingto a chit is not allowable as a businessloss? 2. The facts of the case proceed as follows:- The appellantis engaged in the business of interior decoration. For theassessment year 1997-98, the appellant filed the return of incomeon 17.12.1997 admitting income of Rs.5,23,017/-. The return wasprocessed under section 143(1)(a) on 30.12.1998. Notice underSection 148 was issued on 4.12.2001 and assessment under Section143(3) read with 147 was completed on 28.3.2003 determining thetotal income at Rs.9,59,074/-. While completing the assessment,the assessing officer had disallowed the claim of deduction inrespect chit loss amounting to Rs.3,23,949/- on the ground thatrunning a chit fund or being a member of such fund was not thebusiness of the appellant that the lumpsum amount received didnot give rise to any income assessable to income tax by rejectingthe contention of the appellant that he had been financing hisbusiness by subscribing to chits and the bid amount was depositedwith the bank, that the amount foregone on chits after adjustmentof dividend earned is treated as interest payments and hence theinterest payments is allowable as deduction. As against theassessment order, the appellant preferred appeal before theCommissioner of Income Tax Appeals. The Commissioner of IncomeTax Appeals accepted the contention of the appellant and deletedthe disallowance. The Revenue in its turn preferred appeal to theIncome Tax Appellate Tribunal against the order of the Commissionerof Income Tax Appeals. The Tribunal allowed the appeal filed bythe Revenue. The correctness of the said order is now put in issuebefore this Court. 3. Learned counsel appearing for the petitioner contendedthat the amount received from the chit fund has been invested inthe business and hence the loss sustained in bidding the chit hasto be treated as a business loss. 4. We heard the arguments of the learned for theappellant and perused the materials on records. 3. Learned counsel appearing for the petitioner contendedthat the amount received from the chit fund has been invested inthe business and hence the loss sustained in bidding the chit hasto be treated as a business loss. 4. We heard the arguments of the learned for theappellant and perused the materials on records. 5. We are not able to countenance the arguments of thelearned counsel appearing for the appellant for the simple reasonthat the business of the assessee is only interior decorator andthe investment in the chit and bidding chit for lower amount wouldnot in any way have nexus with the business of the appellant. Tobe a member of the Chit fund was not the business of the appellant.The chit transaction being one, where the members of the chit madecontributions to the fund by monthly instalments and receivelumpsum amount, but at a discount. The discounted amount would be https://hcservices.ecourts.gov.in/hcservices/ distributed amongst the members as dividend and the members haveto contribute their monthly instalments upto the last instalment.Thus the contribution made to the chit fund cannot be treated asbusiness expenditure or the receipt of lumpsum amount or thedividend could be regarded as business activity of theappellant. The Punjab and Haryana High Court in the case of SODASILICATE AND CHEMICAL WORKS VS. CIT (179 ITR 588) has taken theview as follows:- "There was clearly mutuality amongst thecontributors and participators of a chit fundwith their identity being known and wellestablished. Hence, contributions made to thechit fund could not be treated as revenueexpenditure nor could the payment and receiptof any amount to any from the chit fund betreated as the business activity of theassessee. The transactions involved did notgive rise to any income assessable to income-tax nor any revenue loss in respect of whichany deduction could be claimed. Therefore, theTribunal was right in disallowing theassessee's claim of loss in the chit fundaccount during the year in question. We are in complete agreement with the reasoning given by thePunjab and Haryana High Court. 6. For the foregoing reasons, we are of the view thatthere is no question of law muchless substantial question of lawinvolved in this appeal so as to entertain the same. The tax caseappeal is dismissed. Sd/-Asst. Registrar. /true copy/ Sub Asst. Registrar. krr To 1.The Assistant Registrar, Income-Tax Appellate Tribunal, III Floor, Rajaji Bhavan,Besant Nagar, Madras 90 (with records five copies). 2.The Secretary, Central Board of Direct Taxes, New Delhi (3 copies). 3. The Income Tax Officer Ward V(3), Chennai 34. 4. The Deputy RegistrarIncome Tax Appellate Tribunal,'C' Bench, Madras-34.5. Income Tax OfficerBusiness Ward (V)-3- Madras.6. The Commissioner of Income Tax (Appeals (VIII)Madras.Tax Case (Appeal) No.1023 of 2007 MDR (CO)kk 17/10