TMI Blog2015 (6) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of ₹ 75,00,000/- is not borrowed by the assessee for the purpose of business and does not laid out expenditure wholly and exclusively for the purpose of business of the firm, claim for deduction under Section 36(1)(iii) was not justified. The Authorities have rightly disallowed deductions and therefore, we do not see any merit in this appeal. - Decided against assessee. - ITA NO.1132/2008 - - - Dated:- 17-11-2014 - Mr. N.KUMAR AND MR. B.MANOHAR, JJ. FOR THE APPELLANT : SRI S.P.BHAT SRI C.BASAVAIAH, ADVS. FOR THE RESPONDENT : SRI JEEVAN.J.NEERALGI, STANDING COUNSEL JUDGMENT Assessee has preferred this appeal challenging the concurrent findings recorded by three Authorities that the interest paid on the borro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the following substantial questions of law on 09.03.2009, which reads as under: 1. Whether, on the facts and circumstances of the case, the tribunal is justified in rejecting the assessee's claim of interest of ₹ 5,04,803/- on the borrowed funds of ₹ 75,00,000/- from the Bank under Section 36(1)(iii) of the Income-tax Act, 1961? 2. Whether on the facts and circumstances of the case, the tribunal is justified in holding that borrowing was not made for the purpose of the business and therefore the interest claimed as deduction under Section 36(1)(iii) of the Act is not an allowable deduction? 3. Whether on the facts and circumstances of the case, the conclusion of the tribunal that the payments to the retiri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 5. Per contra, learned Counsel for the revenue supports the impugned order passed and places reliance to the Judgment of the Apex Court in the case of Madhav Prasad Jatia v. CIT U.P reported in (118 ITR 200) . The Apex Court while interpreting the provisions of Sections 10(2)(iii) and under Section 12(2) of the Income-tax Act, 1961 which deals with Section 36(1)(iii) of the Act has held that: Proceeding to consider the claim for deduction made by the assessee under s. 10(2)(iii) or s.10(2)(xv), we may point out that under s.10(2) (iii), three conditions are required to be satisfied in order to enable the assessee to claim a deduction in respect of interest on borrowed capital, namely, (a) that money (capital) must have been borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for the carrying on of a business; it may comprehend many other acts incidental to the carrying on of the business but, however wide the meaning of the expression may be, its limits are implicit in it; the purpose shall be for the purposes of business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business . 6. From the aforesaid Judgment, it is clear that, the claim for deduction in respect of interest on borrowed capital the assessee has to satisfy three conditions: (i) that money must have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... virtue of the same, the retiring partners shall have no right of whatsoever nature against the firm or its assets thereafter. The share of the partners for such retirement is 75% and 25%. 8. From a reading of the aforesaid recitals in the reconstituted deed, it is clear that it is continuing partners who are paying a sum of ₹ 1,30,00,000/- to the retiring partners. On the date of the reconstituted deed, they had already been paid a sum of ₹ 55,00,000/-. The said amount is not out of partnership firm. The balance of ₹ 75,00,000/- was also liable to be paid by the continuing partners to the retiring partners. Probably, as on such date, they did not had requisite funds, they have borrowed a sum of ₹ 75,00,000/- from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/- represents consideration paid for the share of the retiring partners. It is not a liability of the partnership firm. 9. Section 37 of the Partnership Act on which reliance is placed reads thus: Right of outgoing partner in certain cases to share subsequent profits. Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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