TMI Blog1975 (12) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... debit balance whereas the account of the assessee with the textile firm was to his credit at the end of each respective year. In each firm, the amount of interest payable by the partner to the firm or by the firm to the partner on the amount outstanding at the foot of the account was at the rate of six per cent. The assessee had a 20 per cent. share in the Lavsi firm and his wife was a partner in Lavsi firm with a 25 per cent. share. In the textile firm the assessee had a 50 per cent. share. At the end of Samvat year 2020, relevant to the assessment year 1965-66, the assessee paid an amount of Rs. 6,934 by way of interest to the Lavsi firm on the amount outstanding at the foot of the account. For Samvat year 2021, relevant to assessment year 1966-67, the assessee paid an amount of Rs. 7,338 by way of interest to the Lavsi firm. The assessee was paid interest at six per cent. by the textile firm in respect of the amount standing to his credit and those amounts of interest in each of the assessment years were included in the total income of the assessee for the purposes of taxation. The assessee claimed that he had allowed his amount to remain with the textile firm and had earned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent of the interest paid which is otherwise not allowable.." So, the Tribunal allowed the appeals of the assessee so far as interest on Rs. 3,000 was concerned, that being the amount borrowed from the Lavsi firm for investment in the textile firm and the appeals as to the rest of the amounts of interest were dismissed. Thereafter, at the instance of the assessee, the question set out hereinabove has been referred to us for our opinion. Before proceeding further with the matter, it must be pointed out that under section 37 of the Income-tax Act, 1961, any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head " profits and gains of business or profession ". In the instant case the Tribunal has found as a matter of fact that barring the amount of Rs. 3,000 which was borrowed from the Lavsi firm for the purpose of investment in the textile firm and to that extent the amount of Rs. 3,000 was borrowed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental and, therefore, the assessee could not claim the deduction on that ground either. This decision of the Bombay High Court was followed by this High Court in Commissioner of Income-tax v.Mrs.Indumati Ratanlal [1968] 70 ITR 353 (Guj). In that case the assessee husband died leaving a will bequeathing half of his estate to his wife and the other half to his minor son. The estate consisted mainly of shares and securities. For the assessment year 1962-63, the assessee claimed that an amount of Rs. 15,397, being one-half of the interest on money borrowed for payment of estate duty, was deductible under section 57(iii) of the Income-tax Act, 1961, from the dividends derived from the shares and securities. It was held by the Division Bench of this High Court that there is no difference between interest paid on money borrowed to pay income-tax and interest on money borrowed to pay estate duty. While the former is not paid for the purpose of making or earning the income, the latter is not made for the purpose of making or earning the assets. Whether interest paid is allowable under section 57(iii) of the Act or not, depends upon the facts of each case. If property is received by a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said that the result of the borrowing was saving of dividend income from shares because by borrowing loans the assessee had saved her income not only from one source, namely, the shareholding, but from all other sources as well from which she must be receiving income. Saving of income from shares was an incidental result of borrowing loans and that incident did not supply any evidence of " purpose ". Even if it were conceded that the assessee was required to take loans with a view to save her investment in shares it could not be said that the interest in question was expenditure incurred " wholly and exclusively " for the purpose of earning income from investment. The immediate purpose of taking the loan on interest was to pay taxes, etc. It could be that the other purpose was to save one of her sources of income but this would show that the purpose was a dual one and would not be covered by section 57(iii). At the relevant time it was obligatory to make annuity deposit and the earning of interest through such deposit was merely, incidental. The interest on the borrowed amount was, therefore, not deductible under section 57(iii). It may be pointed out that by the Taxation Laws (Am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court in Commissioner of Income-tax v. Mrs. Indumati Ratanlal [1968] 70 ITR 353 (Guj) and in Smt. Padmavati Jaykrishna v. Commissioner of Income-tax [1975] 101 ITR 153 (Guj). We prefer to follow the view of this Court in Commissioner of Income-tax v. Mrs. Indumati Ratanlal [1968] 70 ITR 353 (Guj) and Smt. Padmavati Jaykrishna v. Commissioner of Income-tax [1975] 101 ITR 153 (Guj). The present case would not fall under section 37 in any event by virtue of the fact that the amounts were spent except to the extent of Rs. 3,000 for the personal expenses of the assessee as has been found by the Tribunal. The case would also not fall under section 57 because it cannot be said that the amount of interest paid to the Lavsi firm by the assessee was for the purpose of earning the income or interest from the textile firm. In view of these clear conclusions, so far as the facts of the case are concerned, it must be held that the view taken by the Tribunal following the decision of Bai Bhuriben Lallubhai's case [1956] 29 ITR 543 (Bom) was correct. We, therefore, answer the question referred to us in the negative and against the assessee, that is, in favour of the revenue. The assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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