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TMI Blog1982 (8) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... s explained to him that this was a proprietory concern of one of the partners Shri Vishwanath and interest was not charged since the account of the partner showed a credit balance of Rs. 1,12,688. He noted further that it was not denied that a part of the advance to this account made during the year and during the earlier year also was partly out of the borrowed funds from outside. He noted that there was no explanation as to why interest on the difference of Rs. 11,580 should not be charged (Rs. 1,24,268 (-) Rs. 1,12,688). He, therefore, expressed the opinion that since part of the borrowed fund had been utilised for the purposes other than the assessee's own business, the assessee was not entitled to full deduction on account of interest payment at Rs.50,000 Therefore, he disallowed Rs. 6,000 at Rs. 50,000 at the rate of 12 per cent interest. 4. On appeal by the assessee, the AAC found the stand taken by the assessee's counsel to be not acceptable and the case laws relied on also, as not applicable to the facts of the case. Hence, these appeals before us. 5. It is submitted by the assessee's learned counsel that both the authorities below erred in making any part of the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2] 44 ITR 847 (MP) Birla Gwalior (P.) Ltd. v. CIT 2. [1972] 84 ITR 788 (Mad.) CIT v. Pudukottai Co. P. Ltd. 3. [1977] 109 ITR 569 (Bom.) CIT v. Kishinchand Chellaram 4. [1969] 74 ITR 723 (Bom.) CIT v. Bombay Samachar Ltd. In addition, reliance is also placed on the decision of the Tribunal, Calcutta Bench `E'-camped at Jaipur, being IT Appeal No. 1477 (Jp.) 80 in the case of A.B.C dated 11th March 1981 (Taxes & Planning, Vol. 17, page 250 ). Another reliance is on the decision of the Tribunal, Indore Bench, camped at Jaipur, in the case of Curios Houses (Pvt.) Ltd. in IT Appeal Nos. 664 and 665 (JP.) 78-79 dated November 15, 1979. It is submitted, therefore that after taking the ratio of the decisions relied on by the assessee into account, the claim of the assessee should have been considered as admissible and the claim should be allowed. 8. On behalf of the revenue the learned Departmental Representative resists the submissions made on behalf of the assessee while contending that interest payments can be allowed as deduction only when the capital borrowed was for the purpose of the business and that the purpose of the business should be that of the business of the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised for a particular branch of the assessee's business and all that the assessee has got to show is that the capital which was borrowed was utilised for the purpose of the business. 11. In the case of CIT v. Pudukottai Co. (P.) Ltd. [1972] 84 ITR 788, the Madras High Court noted that the interest paid by the assessee on the amounts borrowed by it for the purpose of its business was greater than the interest received by it on the amounts lent by it to persons who were intimately connected with it and the Income-tax Officer disallowed the claim for deduction of the difference but the Tribunal allowed the claim. It was held that in view of the finding that the amounts borrowed were capital and were for the purpose of the business, the entire interest paid by the assessee thereon was deductible under section 10 (2) (iii) of the old Income-tax Act. Thus, the facts of the case are different. 12. In the case of CIT v. Kishinchand Chellaram [1977] 109 ITR 569, the Bombay High Court noted the facts of the case that the Income-tax Officer disallowed the assessee's claim for deduction of interest on borrowings on the ground that they were not for business purposes but were partly for meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of advancing loans by the assessee either to Bombay Chroncile (P.) Ltd. or to Cama Narton Co. and under these circumstances it is difficult to see how the assessee's claim could be disallowed. But in the case before us, the dispute primarily is also regarding the use to which the borrowed amount was utilised by the assessee. There are other distinguishable features and facts of that decided case as stated briefly above. 13. In our opinion, the ratio of the case laws relied on by the assessee would not be applicable to the facts of the case before us. 14. In the Calcutta case cited on behalf of the assessee it is seen that the Tribunal found that the fund of the partners as whole, was much more than the advances made to the sister concern or to the partner of the firm and in addition there were substantial amount of credits available to the assessee on which no interest had been paid and that the available funds on which no interest had been paid were much larger than the amount advanced for the purpose other than the business or which it utilised for such borrowed capital, the purpose for the business. The Tribunal held that on the facts of that case the revenue authorities h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 10 (2) (iii) interest paid on borrowed capital will be allowed as deduction only if the capital was borrowed and used for the purposes of the business and that if it is used for a purpose other than that of a business, then interest to the extent to which the capital was so used will not be admissible deduction. The decision in the case of Bombay Samachar was also considered. 16. Having regard to the different submissions made before us by both the sides and having gone through the decisions cited above, we are of the opinion that the case laws relied on by the assessee do not help the case of the assessee. As held by the Hon'ble Bombay High Court as reported in (1977) 114 ITR 654 (Bom.) interest paid on borrowed capital will be allowed as deduction only if the capital was borrowed and used for the purpose of the business. Thus, the claim of the assessee that once the assessee has shown that the borrowings were made for the purpose of the business, it is not for the Income-tax Deptt. To enquire the user of such borrowed funds, cannot be accepted on the facts of the case before us. It is also not the case of the assessee that the advances made to the outside parties were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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