TMI Blog1969 (6) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... to 1956-57 was an admissible deduction under the Indian Income-tax Act ? " The assessee is carrying on business as publishers of a Gujarati newspaper called "Bombay Samachar". Two other concerns, viz., M/s. Bombay Chronicle Pvt. Ltd., which was publishing a paper called " Bombay Chronicle " and M/s. Bombay Associated Newspapers Ltd., which was publishing a newspaper called the " Bombay Sentinel ", were sister concerns of the assessee. In the year 1939, it was considered desirable by these three concerns to incur certain items of common expenditure jointly and allocate the same among themselves in an agreed manner. Accordingly, the board of directors of each of the three concerns passed appropriate resolutions resolving that expenditure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loans. The total amount of interest paid in the years with which we are concerned is as follows: Calendar year Amount 1952 25,109- 3-0 1953 22,243- 0-0 1954 22,139- 0-0 1955 11,791-13-0. In its assessment for these years the assessee claimed as deduction the amounts of interest which it had paid on the said borrowed capital. The Income-tax Officer took the view that, since the assessee had charged no interest on the balances which were due to it from the Bombay Chronicle Pvt. Ltd., to the extent to which the said interest was not charged, it would not be allowed any deduction out of the amount of interest paid to its creditors. According to the Income-tax Officer, the amounts due from the Bombay Chronicle Pvt. Ltd. to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the balance due from the Bombay Chronicle Pvt. Ltd. to the assessee was in respect of the advance of loans which had been made by the assessee to the Bombay Chronicle Pvt. Ltd. and to the extent of these loans the assessee must have been taken to have diverted its capital which it had borrowed from outsiders, and interest paid on the amount borrowed by the assessee for its business would not, therefore, be allowable under section 10(2)(iii). The assessee went in second appeal to the Tribunal against the appellate orders of the Appellate Assistant Commissioner. The Tribunal held that the assessee was entitled to the entire amount of interest as an allowable deduction under section 10(2)(iii). It accordingly set aside the orders passed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under section 10(2)(iii) of the Income-tax Act, all that the assessee has to show is that the capital which was borrowed was used for the purposes of the business of the assessee in the relevant year of account. It does not matter whether the capital is borrowed in order to acquire a revenue asset or a capital asset. If the capital is used in the year of account and the use is for the purpose of the business of the assessee, it is immaterial whether the user of the capital actually yielded profit or not and it is not open to the department to reject the claim of the assessee in respect of the interest paid on that capital merely because the use of the capital is unremunerative. " As we have already pointed out, it is undisputed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness so that if at the time of borrowing the assessee had sufficient amount of its own, the deduction could not be allowed. Similarly, the Madras High Court in Amna Bai Hajee Issa v. Commissioner of Income-tax has held that in deciding whether a claim for interest on borrowing can be allowed the fact that the assessee had ample resources at its disposal and need not have borrowed, is not a relevant matter for consideration. The matter to be decided is whether the amount of interest was paid in fact in respect of the capital borrowed for business. The view taken by the Income-tax Officer, therefore, that the assessee could have decreased the extent of its borrowings by collecting its outstandings and, therefore, would not be entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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