9911796707
TMI Blog1996 (1) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... re was no justification for disallowing any portion of the interest payment claimed by the assessee as relating to non-business purposes ? " In making the assessment of the assessee, who is an individual, carrying on business in executing sanitary contracts, the Income-tax Officer disallowed interest payment of Rs. 10,069 for the assessment year 1972-73 on the ground that the said interest relating to the borrowed funds utilised by the assessee for his personal purposes should be disallowed as in the last year. For the assessment year 1973-74, he disallowed a similar sum of Rs. 10,069 on the ground that the assessee has claimed interest payment to the tune of Rs. 40,256, that the balance-sheet showed a sum of Rs. 2,16,070 on the assets sid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the father, Shri M. V. Subramaniam, died on July 10, 1970, that the opening debit balance as on April 1, 1970, in his account was Rs. 50,527, that during the period he had out of borrowings paid a sum of Rs. 33,384 as income-tax and that the borrowings of Rs. 83,911 was utilised for the personal purposes of the proprietary business and at 12 per cent. per annum the interest attributable to such borrowings amounted to Rs. 10,069 for the whole year and the same should therefore be disallowed. According to the Department, the Appellate Assistant Commissioner was not correct in following the decision of the Bombay High Court in CIT v. H. H. Maharani Shri Vijaykuverba Saheb of Morvi [1975] 100 ITR 67. The Department relied upon the following d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs and on the debit side the old proprietors account, in respect of which the case of diversion for non-business purposes is made, amounts to only Rs. 22,20,590.96 (?). The Tribunal came to the conclusion that there is no justification for disallowing any portion of the interest payment claimed by the assessee as relating to non-business purposes. Accordingly, the Tribunal accepted the view taken by the Appellate Assistant Commissioner in all the years under consideration. Learned standing counsel for the Department submitted before us that the Tribunal was not correct in allowing the interest paid on borrowed capital which was utilised for non-business purposes. It was submitted that the Department established that the father of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent to which the capital was so used, will not be allowed as a permissible deduction under the abovesaid provision. We have heard learned standing counsel for the Department and perused the records carefully. The fact remains that the assessee's father died on July 10, 1970. The first assessment year after the father's death was the assessment for the accounting year relevant to the year ending March 31, 1972. In the balance-sheet as on March 31, 1972, on the credit side, the assessee's capital account was shown at Rs. 1,58,675 and the advance against contracts was shown at Rs. 1,53,392.68. The total comes to Rs. 3 lakhs. On the debit side, the old proprietor's account in respect of which the case of diversion for non-business purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for business purposes. In such a case, it cannot be said that there can be a presumption that a part of the capital would have been diverted for non-business purposes not from the bor rowed capital but from the capital contributed by the assessee. In the absence of such an element in the facts arising in the present case, we are unable to subscribe to the view of the Tribunal that the assessee is entitled to deduction under section 36(1)(iii) with regard to the interest paid on borrowed capital, which was utilised by the assessee's father for non-business purposes. In that view of the matter, we answer the question referred to us in the negative and in favour of the Department. There will be no order as to costs. X X X X Extracts X X X X X X X X Extracts X X X X
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