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1981 (2) TMI 70 - HC - Income TaxDisallowed Interest On Borrowed Capital u/s 36(1)(iii) - The capital provided u/s 23 of the Act, by the Central Govt. or thee State Govt. is the capital borrowed for the purposes of the business or profession - HELD THAT:- In case of CEPT v. Bhartia Electric Steel Co. Ltd. [1953 (5) TMI 16 - CALCUTTA HIGH COURT], the question was whether it was "money had and received" or "borrowed money". It was held that there has to be a positive act of lending coupled with acceptance by the other side of the money, as a loan. Thus, it is clear that an element of refund or repayment is inherent in the concept of borrowing. There is no provision in the Act which contemplates the repayment of the capital so provided u/s 23 of the Act. Apart from that, S. 23 of the Act provides that the Central Govt. and the State Govt. may provide any capital. In other words, it is not by virtue of any agreement, etc., between the parties, but because of the statutory provision that the Governments are obliged to provide the capital. It is u/s 26 of the Act that the corporation may borrow money in the open market for the purpose of raising its working capital. Thus, the distinction has been made in the Act itself between the “capital provided” u/s 23 and the "capital borrowed" u/s 26. There is no obligation to refund the capital provided by the Governments. In this view of the matter, the “capital provided” u/s 23 of the Act by the two Governments, cannot be said to be " capital borrowed as contemplated u/s 36(1)(iii) of the I.T. Act. Thus, the answer to the question is in the negative, that is, against the assessee and in favour of the revenue.
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