TMI Blog1979 (4) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... setting up an engineering college at Khurja to be named Seth Ganga Sagar Jatia Electrical Engineering Institute, Khurja . She also promised a further sum of ₹ 1.5 lakhs for the construction of a female hospital at Khurja but this subsequent donation of ₹ 1.5 lakhs was to include the total interest that was to accrue on the sum of ₹ 10 lakhs earlier donated to the college. In pursuance of the promise made on October 21, 1955, she actually made over a sum of ₹ 5.5 lakhs by depositing the same in a joint account opened in the names of the District Magistrate, Bulandshahr and Smt. Indermani Jatia for the college while the balance of ₹ 4.5 lakhs was left with the assessee and was treated as a debt to the institution and interest thereon at 6% per annum with effect from October 21, 1955, was to be finally deposited in the technical institute account. These facts become clear from a certificate dated October 17, 1958, issued by the District Magistrate, Bulandshahr, which was produced before the Appellate Tribunal. The aforesaid transaction came to be recorded in the books of the assessee as follows : At the beginning of the accounting year (Samvat year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -59 and 1959-60. As regards the three sums paid by way of interest on ₹ 5.5 lakhs to the bank, the taxing authorities took the view that the said claim for deduction was not admissible either against business income under s. 10(2) or against income from investments under s. 12(2) of the Indian I.T. Act, 1922. So also the claim for deduction of interest credited to the college account on ₹ 4.5 lakhs was disallowed. The assessee preferred appeals to the Appellate Tribunal. It was contended on behalf of the assessee that she had promised a donation of ₹ 10 lakhs to the engineering college on October 21, 1955, that the obligation to pay the said amount arose on November 21, 1955, when the amount was debited to her capital account and the corresponding credit was given to the account of the institution, and that out of this total donation a sum of ₹ 5.5 lakhs was actually deposited in the joint account of the assessee and the District Magistrate, Bulandshahr, on January 7, 1956, for which the overdraft with the Central Bank was operated and hence the interest was deductible as business expenditure. As regards interest on ₹ 4.5 lakhs that was debited to her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question whether in the facts and circumstances of the case the interest credited by the assessee to the account of Ganga Sagar Jatia Engineering College on the sum of ₹ 4.5 lakhs and accretion thereto was an admissible deduction for each of the said two years (being Income-tax Reference No. 342 of 1964). The High Court heard and disposed of both the references by a common judgment dated September 22, 1971. In the Reference No. 775 of 1970, the case of the assessee was that there was an obligation to pay ₹ 10 lakhs to the engineering college, that for the time being the assessee decided to pay ₹ 5.5 lakhs, that it was open to the assessee to pay the amount from her business assets or to preserve the business assets for the purposes of earning income and instead borrow the amount from the bank and that she had accordingly borrowed the amount from the bank and, therefore, since the borrowing was made to preserve the business assets, the interest thereon was deductible under s. 10(2)(iii) or s. 10(2)(xv) of the Act. The High Court observed that there was nothing to show that the assessee would necessarily have had to employ the business assets for making payment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. On obtaining special leave the original assessee represented by her legal heir has preferred Civil Appeals Nos. 1831-1833 of 1972 to this court. Mr. Manchanda appearing for the appellant has raised two or three contentions in support of the appeals. In the first place, he has contended that though the deduction claimed by the assessee in this case was on the basis of business expenditure falling under either s. 10(2)(iii) or s. 10(2)(xv), the taxing authorities, the Tribunal and the High Court have confused the issue by considering the claim for deduction under s. 12(2) of the Act. According to him the scope for allowing the deduction under s. 10(2)(iii) or 10(2)(xv) was much wider than under s. 12(2) of the Act. He urged that by applying the ratio of the decision in Bhuriben's case [1956] 29 ITR 543 (Bom), which was admittedly under s. 12(2) of the Act, to the facts of the instant case the lower authorities as well as the High Court had adopted a wrong approach which led to the inference that the deduction claimed by the assessee was not admissible. Secondly, he urged that considering the case under s. 10(2)(iii) or s. 10(2)(xv) the question was when could the obligatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court as suggested by learned counsel for the appellant. He pointed out that initially the assessee had specifically raised the plea that the borrowing of ₹ 5.5 lakhs had been resorted to with a view to save income-yielding investments, namely, the shares, and, therefore, both the alternative cases as to whether the interest paid on ₹ 5.5 lakhs was an admissible deduction either against business income under s. 10(2)(iii) or income from investments under s. 12(2) were considered by the taxing authorities and the taxing authorities held that such interest was not admissible under either of the provisions. He pointed out that so far as the Tribunal and the High Court were concerned the assessee's claim for deduction under s. 10(2)(iii) or s. 10(2)(xv) had been specifically considered and negatived. He sought to justify the view of the Tribunal and the High Court in regard to the disallowance of interest paid by the assessee on the sum of ₹ 5.5 lakhs to the bank in the three concerned assessment years as also the disallowance of interest credited by the assessee to the account of the engineering college on the sum of ₹ 4.5 lakhs and the accretion theret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant and that simply because the assessee in that case had chosen to borrow money to buy jewellery it did not follow that she had established the purpose required to be proved under s. 12(2) that she borrowed the money in order to maintain or preserve the fixed deposits or helped her to earn interest. This is far from saying that the ratio of that case has been applied by the High Court to the instant case. In fact, the High Court found that there was no material to show that the assessee in the instant case would necessarily have had to employ the business assets for making payment to charity. The High Court actually considered the assessee's case under s. 10(2)(iii) and s. 10(2)(xv) and disallowed the claim for deduction under these provisions principally on the ground that the said borrowing of ₹ 5.5 lakhs was unrelated to the business of the assessee. 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 (ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not ? The amount of ₹ 5.5 lakhs having been actually parted with by the assessee on January 7, 1956, and having been accepted by the institute, the same being deposited in the joint account of the assessee and the District Magistrate, Bulandshahr, for the engineering college, the gift to that extent was undoubtedly complete with effect from the said date. The said payment was made by the assessee by drawing a cheque on the overdraft account which she had with the Central Bank of India Ltd., Aligarh. In regard to this overdraft account, the Tribunal has noted that at the beginning of the accounting year the amount outstanding in the said overdraft was ₹ 2,76,965, that further overdrafts were raised during the accounting year with the result that at the end of the year the assessee's liability to the bank in the said account rose to ₹ 9,56,660 and that among the further debits to this account during the year was the said sum of ₹ 5.5 lakhs paid to the college on January 7, 1956. On a consideration of the aforesaid position of the overdraft and the other material on record, the Tribunal has recorded a clear finding of fact which has been accepted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tedness and save a part of the interest which it had to pay on its own borrowings, that the assessee could not be justified in allowing its outstandings to remain without charging any interest thereon while it was paying interest on the amounts borrowed by it, and that to the extent to which it would have been in a position to collect interest on the outstandings due to it from others, it could not be permitted to claim as an allowance interest paid by it to outsiders. The High Court held that such a view was clearly unsustainable and observed that it is not the requirement under s. 10(2)(iii) that the assessee must further show that the borrowing of the capital was necessary for the business so that if at the time of the borrowing the assessee has sufficient amount of its own the deduction could not be allowed and the High Court further took the view that in deciding whether a claim of interest on borrowing can be allowed the fact that the assessee had ample resources at its disposal and need not have borrowed, was not a relevant matter for consideration. The decision in Kishinchand Chellaram's case [1977] 109 ITR 569 (Bom) was rendered in the peculiar facts which obtained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... District Magistrate, Bulandshahr, for the college and the remaining sum of ₹ 4.5 lakhs was left as a loan with the assessee and interest thereon at 6% per annum was to be finally deposited in the technical institute account. The Tribunal and the High Court were also right in taking the view that beyond making entries in the books of account of the assessee there was no material on record to show that the assessee had actually made over a sum of ₹ 4.5 lakhs to the college or that the college had accepted the said donation with the result that the amount credited to the college account in her books represented her own funds and lay entirely within her power of disposition and that being so, the interest credited by the assessee on the said sum of ₹ 4.5 lakhs and the accretion thereto continued to belong to the assessee, and, therefore, she was not entitled to the deduction in respect of such interest. Counsel for the assessee attempted to contend that the obligation to make over the said sum of ₹ 4.5 lakhs could be said to have become enforceable on the basis of promissory estoppel but, in our view, no material has been placed on record by the assessee to sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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