TMI Blog1981 (4) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... hare income of Rs. 6 from this firm during the financial year 1962-63 relevant for the assessment year 1963-64. He had besides some property income, speculation profits and capital gains. The assessee had become a partner in M/s. Jain Finance Co. under an instrument of partnership dated 10th May, 1962. But the accounts of M/s. Jain Finance Co. were closed for the first time in May, 1963, and the previous year of that firm was the year which ended on the corresponding day in May of each year. The result was that in respect of the share income from M/s. Jain Finance Co. the previous year of the assessee ran from May to May and the share income attributable to the period May 10, 1962, to May 9, 1963, became assessable in the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clearly erroneous. It referred to the decision of the Supreme Court in Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 and of the Madras High Court in P. V. Mohamed Ghouse v. CIT [1963] 49 ITR 127 and to certain decisions of the Bombay High Court and allowed the assessee's claim. The Commissioner is aggrieved and has come up to this court on reference on the following question of law: " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the deduction of interest of Rs. 21,400 under section 36(1)(iii) read with section 67(3) of the Income-tax Act? " When the reference came up for hearing before us earlier we were of opinion that the difference between the assessee and the department cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income-tax or before the Central Board of Direct Taxes and obtain the necessary relief. But after several adjournments we understand that the assessee's efforts in this direction have not been successful and that the CBDT considered itself unable to interfere perhaps due to the pendency of this reference. In the above circumstances, we have heard this reference and proceed to dispose of the same. It is true that under s. 67(3) of the Act the assessee is entitled to deduction of the interest paid on the capital borrowed by him for investment in order to derive share income from a firm and this can be allowed as a deduction against the share income which accrues to him from the firm. But we agree with the Tribunal that the further q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question and the question was whether notwithstanding the absence of any dividend income assessable in the particular assessment year the assessee was entitled to get a deduction in respect of interest on the monies borrowed for the purposes of making the above investment. This question was answered by the Supreme Court in the affirmative. Though that was a decision in respect of an item assessable under s. 56 and the claim arose under s. 57(iii) it does not make any difference in principle, for, the Supreme Court itself makes it clear that the language of s. 37(1) is wider still. In view of the above decision of the Supreme Court it is clear that the interest paid by the assessee cannot be disallowed merely because during the previous y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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