TMI Blog1989 (4) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... Rao for non-business purposes, viz., construction of building for the Hindu undivided family ?" The assessee is a firm carrying on business in supplying leather goods, metal goods, textiles and woollen goods to the police and military departments. While finalising the assessment for the assessment year 1975-76, the Income-tax Officer considered the question of allowing the payment of interest on advances secured by the firm and it was found that the firm had advanced monies to the Hindu undivided family for the construction of a house. Thereupon, the assessee was asked to state why interest attributable to diversion of funds to the Hindu undivided family should not be disallowed and the assessee maintained that the entire loans were utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for the disallowance and accordingly deleted the addition of Rs. 17,123. That is how the question of law set out earlier has come up before this court. Learned counsel for the Revenue submitted that the assessee-firm and the Hindu undivided family are two distinct and separate entities and that even as per the statement of accounts relied on by the assessee-firm, there is nothing to indicate that the amounts borrowed by the firm had not been utilised by it for the purpose of house construction and this justified the disallowance of the interest, as done by the authorities below. Reference was made in this connection to Milapchand R. Shah v. CIT [1965] 58 ITR 525 (Mad) and P. RM. S. Ramanathan Chettiar v. CIT [1969] 72 ITR 534 (Mad). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble, as there was adequate credit balance in the capital and current accounts of all the partners. It is thus seen even from the accounts maintained by the assessee-firm that the amounts borrowed by the firm for its business purposes had been entered as having been advanced as a loan to the Hindu undivided family for purposes of house construction instead of being shown as drawings in the partners' personal accounts. It would thus, even on the findings of the Tribunal, follow that borrowed funds had been utilised not for the purposes of the business of the firm, but had been advanced as a loan to the Hindu undivided family for the purpose of meeting the house construction expenses. Undoubtedly, this would constitute a diversion justifying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should have come only out of the funds of the firm borrowed for its business purposes. From out of the funds so borrowed, the assessee-firm had diverted the borrowed funds for purposes other than its business requirements and to that extent, the interest on borrowals should have been disallowed On the facts and in the circumstances of the case and the state of accounts relied on by the Tribunal, we hold that the Tribunal was not right in deleting the disallowance of interest. We find it unnecessary to make a reference to any of the cases relied on either by counsel for the Revenue or the counsel for the assessee. We, therefore, answer the question referred to us in the negative and in favour of the Revenue. - - TaxTMI - TMITax - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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