TMI Blog1968 (9) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the Tribunal was justified in inferring that out of the total loan raised during the accounting year, the sum of Rs. 1,32,081 could not be considered as for the purpose of his business, that it could only be in respect of the debit balance in the profit and loss account and that the assessee is not entitled to claim as a business expenditure the interest due on the said amount ? " There is only one question, in the second case ; and it is the same as question No. 1 in the first case. During the year ended December 31, 1959, the assessee was conducting a tin factory for manufacture of tin containers ; and he was also exporting cashew kernels and conducting a saw mill. Formerly, he was running a stage carriage business under the style of Vijayalakshmi Motors. This business was sold away in 1956 with all the vehicles. Some years ago he worked a forest coupe at Nagercoil. He had another saw mill under the name Asramam Saw Mills, which he leased out in 1953. But he resumed this business in October, 1956. He also owned a cashew factory in the name of Eastern Exporting Corporation, which he leased out in 1954. But he resumed this business in 1959. Advances made by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, and hence the interest incurred by the assessee for raising loan for the business of the firm was an allowable expenditure. This contention was repelled by the Appellate Tribunal as well as the subordinate authorities. Question No. 1 in the first reference case relates to this matter. Regarding the debit of Rs. 2,80,513.02 in the profit and loss account, the assessee raised two contentions before the Appellate Tribunal. First, the debits of the four amounts (mentioned in paragraph 2 above) making a total of Rs. 2,84,759.64 on 1st January, 1958, in the profit and loss account of the assessee did not mean any actual drawings by the assessee from the business ; they were only account adjustments ; the notional depreciation written off during the prior years would cover more than, the debit of Rs. 2,80,513.02 found in the profit and loss account of the assessee ; and the said amount should not, therefore, be treated as a diversion of amounts for non-business purpose. Secondly, the aforesaid four debits related to existing business of the assessee; and, even if they were considered as actual drawings from the tin factory business, they were for the purposes of the said four busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct or not, is, for the purpose of the income-tax law, an entity distinct from its partners. The fact that one of the partners is the husband or wife, as the case may be, of the other partner, or that minor children have been admitted to the benefits of a partnership, of which the parents alone are the partners does not make any difference on the above legal position. But the obvious question that arises for consideration is whether, in computing profits and gains from the business of a person, he is entitled to claim deduction of interest paid on borrowed investment in a firm, of which he is a partner. It is now well settled by the decisions of the Supreme Court in Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. Muthuraman Chettiar, that all the businesses of an assessee constitute one head under section 10 of Act ; and that, in order to determine the profits and gains from business under section 10, an assessee is entitled to adjust against his profits from one business the losses incurred by him in another business. In other words, while profits or losses of each distinct business may be computed separately, the tax is payable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(1), which is the head of business. " The above passage was quoted with approval by the Madras High Court in Muthuraman Chettiar v. Commissioner of Income-tax. This decision was affirmed by the Supreme Court in Commissioner of Income-tax v. Muthuraman Chettiar. It was held in this case that an individual, who was ordinarily resident in India and carrying on business in India, was entitled to set off the loss incurred by him as partner of a non-resident firm carrying on business outside India, against his profits and gains from business carried on in India. The Madhya Pradesh High Court held in Seth Sorabji Framji Kerawala v. Commissioner of Income-tax that, in computing the individual income of a partner of an unregistered firm, interest paid by him to outsiders on moneys borrowed and advanced by him to the firm for the purposes of the business of the firm is allowable, as a deduction, if the firm itself was not assessed as a unit. It also held that the position would be different if the unregistered firm is assessed as a separate unit. We are not sure whether this would make any difference in the light of the decision of the Supreme Court in Muthuraman Chettiar's case. In Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not commenced production ; and it was neither assessed nor registered under the Act for the relevant assessment years. If the firm made any profits, the same would have been deemed as part of the income of the assessee by virtue of section 16(3) of the Act. The fact that the firm is not registered or that it did not make any profit is no reason for not allowing interest paid by the assessee on the borrowed investments in the firm, which admittedly were for the purpose of the business of the firm. We shall now proceed to consider the second question in I.T.R. Case No. 39 of 1967. When the sum of Rs. 7,72,287.12 consisting of the items mentioned in paragraph 2 above was debited in the profit and loss account of the assessee as on 1st January, 1958, the amount available to the credit of the above account was only Rs. 4,08,481.73, which represented the balance of the undrawn profits from 1946 to 1957. The sum of Rs. 2,80,513.02 shown as debit balance in the assessee's profit and loss account as on December 31, 1959, was arrived at, after taking into account the aforesaid sum of Rs. 4,08,481.73 and the profit of Rs. 83,292.37 earned during the above year. Admittedly, the depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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