Tulzapurkar, J. - (1.) The assessee, Smt. Indermani Jatia, widow of Seth Ganga Sagar Jatia of Khurja, carried on money-lending and other businesses and derived income from various sources such as investment in shares, properties and businesses. However, the capital, assets and income in respect of different sources of income were incorporated in one common set of books. With a view to commemorate the memory of her deceased husband, on October 21, 1955 she promised a donation of Rs. 10 lacs for setting up an Engineering College at Khurja to be named 'Seth Ganga Sagar Jatia Electrical Engineering Institute Khurja', She also promised a further sum of Rs. 1.5 lacs for the construction of a Female Hospital at Khurja but this subsequent donation of Rs. 1.5 lacs was to include the total interest that was to accrue on the sum of Rs. 10 lacs earlier donated to the college. In pursuance of the promise made on October 21, 1955 she actually made over a sum of Rs. 5.5 lacs by depositing the same in a joint account opened in the names of the District Magistrate Bulandshahr and Smt. Indermani Jatia for the college while the balance of Rs. 4.5 lacs was left with the assessee and was treated as a debt to the Institution and interest thereon at 6% per annum with effect from October 21, 1955 was to be finally deposited in the Technical Institute account. These facts become clear from a certificate dated October 17, 1958, issued by the District Magistrate, Bulandshahr which was produced before the Appellate Tribunal.
(2.) The aforesaid transaction came to be recorded in the books of the assessee as follows:At the beginning of the accounting year (Samvat year 2012-13- accounting period 13-11-1955 to 1-11-1956) relevant to the assessment year 1957-58 the capital account of the assessee showed a net credit balance of Rs. 23,80,753. Initially on November 21, 1955, a sum of Rs. 10 lacs was debited to her capital account and corresponding credit was given to the account of the said Institute. At the close of the said accounting year (i. e. on 1-11-1956) after debiting the aforesaid sum of Rs. 10 lacs the capital account showed a net credit balance of Rs. 15,06,891. Thereafter, during the same year of account the assessee actually paid only a sum of Rs. 5.5 lacs to the institution on January 7, 1956 from the overdraft account which she had with the Central Bank of India Ltd., Aligarh. At the beginning of the accounting year the amount outstanding in the overdraft was Rupees 2,76,965, further overdrafts were raised during the accounting year with the result that at the end of the year the liability of the assessee to the bank was Rs. 9,55,660, among the further debits to this account during the year was the said sum of Rs. 5.5 lacs paid to the Engineering College on January 7, 1956. The balance of the promised donation, namely, Rs. 4.5 lacs was, as stated earlier, treated as a debt due by her to the Institute and accordingly she was debited with interest thereon at 6% per annum with effect from October 21, 1955.
(3.) In the assessment proceedings for the assessment years 1957-58, 1958-59 and 1959-60 the assessee claimed the deduction of three sums - Rs. 20,107 Rs. 25,470 and Rs. 18,445 being the respective items of interest paid by her to the bank on Rs. 5.5 lacs during the Samvat year relevant to the said assessment years. The assessee contended that she had preferred to draw on the overdraft account of the bank for the purpose of paying the institution in order to save her income earning assets, namely, the shares, which she would have otherwise been required to dispose of and, therefore, the interest paid by her should be allowed. As regards interest on the remaining sum of Rs. 4.5 lacs (which was left as a loan with the assessee) that was debited to her account, the assessee urged that she was also entitled to claim the same as a permissible deduction:the claim in respect thereof, however, was made for the assessment years 1958-59 and 1959-60. As regards the three sums paid by way of interest on Rs. 5.5 lacs to the bank, the taxing authorities took the view that said claim for deduction was not admissible either against business income under S. 10 (2) or against income from investments under S. 12 (2) of the Indian Income Tax Act, 1922. So also the claim for deduction of interest credited to the college account on Rs. 4.5 lacs was disallowed. The assessee preferred 'appeals to the Appellate Tribunal. It was contended on behalf of the assessee that she had promised a donation of Rs. 10 lacs to the Engineering College on October 21, 1955, that the obligation to pay the said amount arose on November 21, 1955 when the amount was debited to her capital account and the corresponding credit was given to the account of the institution, and that out of this total donation a sum of Rupees 5.5 lacs was actually deposited in the joint account of the assessee and the District Magistrate, Bulandshahr on Jan. 7, 1956 for which the overdraft with the Central Bank was operated and hence the interest was deductible as business expenditure. As regards interest on Rs. 4.5 lacs that was debited to her account and credited to the Institute's account it was urged that this balance amount was kept in trust for the institution and hence the accruing interest thereon which was debited to her account should be allowed as deduction. In support of these submissions a certificate issued by the District Magistrate, Bulandshahr dated October 17, 1958 was produced before the Tribunal. The Appellate Tribunal, however, confirmed the disallowance of interest claimed in respect of the sum of Rs. 5.5 lacs holding that the said sum of Rs. 5.5 lacs over-drawn from the bank was not borrowed for business purposes but was borrowed for making over the donation and, therefore, the claim could not be sustained under S. 10 (2) of the Income Tax Act, 1922. As regards the interest accruing on the sum of Rs. 4.5 lacs in favour of the Engineering College, the Appellate Tribunal held that no donation of that sum had been made by the assessee, that it was at best a promise by the assessee to the District Magistrate to pay that amount for purpose of charity and the mere entries in the assessee's own account book crediting the trust, which had yet to come into existence, would not amount to a gift or charity for a trust and as such the interest credited to the account of the Engineering College was also disallowed. Meanwhile, Smt. Indermani Jatia died and her legal heir Madhav Prasad Jatia was substituted in the proceedings.;