JUDGEMENT
M.A. Ajinkya, Accountant Member -
(1.)THIS case has had a chequered history. The original order passed by the Tribunal on 31-10-1983 in the departmental appeals for the assessment years 1974-75 to 1977-78 has been re-considered and modified on three different occasions consequent to the miscellaneous petitions filed by the assessee and the department. The final order of the Tribunal was passed on 6-10-1988 on the miscellaneous application filed by the assessee on 12-4-1988. The Tribunal has recalled the order originally passed on 31-10-1)983. The matter was re-heard when detailed submissions were made by Shri Ramaswamy on behalf of the department and by Shri Y.P. Trivedi, the learned counsel for the assessee.
(2.)All these four appeals are by the department and they relate to the assessment years 1974-75 to 1977-78. The assessee herein is an individual, who had income from interest on securities, from house property, interest, dividend and director's fees. He had borrowed moneys from Banks and from his wife. Her Highness Maqbul Jehan Begum. The issue before the Tribunal concerned the admissibility of interest paid by the assessee. The interest paid by the assessee to Bank during the years under appeal was as follows :
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The Tribunal, in their original order dated 31-10-1983, held that the interest paid to Banks was an allowable deduction. It further held that the assessee was not entitled to deduction of more than Rs. 12,237 for the years 1974-75 to 1976-77. As regards interest payments made by the assessee to his wife, Her Highness Maqbul Jehan Begum, the Tribunal, after considering the various submissions made, held that the interest on the loans taken from the assessee's wife was not eligible for deduction.
Against this order of the Tribunal, the assessee filed a misc. application on 31-1-1985. In the said misc. application, the assessee pointed out that the observations of the Tribunal in para 1 to the effect that they were not told that there was already a commitment to purchase shares and that the commitment was not shown to exist were not correct inasmuch as the assessee had shown to the Tribunal articles of agreement dated 7-10-1973 which clearly indicated that that there was a commitment to purchase shares of M/s Shalimar Biscuit Co. Ltd. The Tribunal passed order on the misc. application on 11-7-1986. In paragraphs 6 and 7 of their order, the Tribunal observed as under :
6. We have gone through the agreement referred to above. We find that the preamble of the agreement brings out clearly the obligation of the assessee to keep Rs. 4.24 lakhs with the company towards the equity share capital of the company. It is only on the deposit continuing with the company that the insurance company had agreed to relieve him of the obligations under the counter-guarantee. Thus, the finding that there was no obligation to purchase the shares of the limited company was a mistaken finding given without considering the materials placed before the Tribunal.
7. In the light of this finding we have to consider whether the final conclusion that the interest is not allowable requires any change. Now once the amount has been deposited for purchase of shares, then the amount is utilised for earning income yielding assets. It is not material that it should yield income during the accounting year. That is now well settled by the decision of the Supreme Court in the case of CIT v. Rajendraprasad Modi [1978] 115 ITR 519. Therefore/the interest payable on the loan of Rs. 3 lacs taken from the assessee's wife will be allowable as a deduction. To this extent, the original order of the Tribunal would stand modified. The miscellaneous application stands allowed.
(3.)THE department filed a misc. application against the order passed by the Tribunal on the misc. application filed by the assessee in M.A. No. 71(Bom)/85. In the misc. application filed by the department, it was brought to the notice of the Tribunal that the assessee had not purchased shares of the company and that the amount was merely kept as a deposit with the company. If the interest was to be allowed under Section 57(iii), there must be a purchase of shares with borrowed funds. If the shares were not purchased at all and if the money was kept only as a deposit, the interest could not be allowed. THErefore, according to the department, the conclusion of the Tribunal that the interest was an admissible deduction Under Section 57 (iii) even when there was no purchase of shares by making use of borrowed funds was an erroneous conclusion which required to be modified. THE Tribunal passed their order in M.A. No. 147(Bom)/87 on 2-2-1988. In this order, the Tribunal observed that all the facts were before the Tribunal when they first heard the matter and no material was left out of consideration. THE reason why the assessee borrowed moneys and kept them as deposit with the company was for getting a release from the counter-guarantee he had given to the insurance company. This fact was before the Tribunal when it first heard the matter. No material was left out of consideration by the Tribunal and, therefore, the order of the Tribunal admitting the misc. petition of the assessee was in effect an order of review. This order was, therefore, rectified by the Tribunal and the original order was restored. THEre was yet another misc. application by the assessee against this order filed on 12-4-1988. In this misc. application, it was pointed out that the assessee had gathered an impression that the department's misc. application dated 25-6-1987 would be dismissed but the reference application of the department would be allowed. THE assessee did not argue his case since he gathered an impression that there was no need to do so. After considering this misc. application, the Tribunal in their order in M.A. No. 76(Bom)/88, 6-10-88 allowed the second misc. application of the assessee. THEy recalled the order of the Tribunal in I.T.A. Nos. 5304 to 5307 (Bom)/82 and on assessee's misc. application in M.A. No. 71 (Bom.)/88 and on revenue's misc. application bearing No. 147(Bom)/87. THEy also recalled the order of the Tribunal in R.A. Nos. 1229 to 1232(Bom)/86 and directed that the revenue's appeals in I.T.A. Nos. 5304 to 5307(Bom)/82 be re-fixed for decision. THEse appeals have now been heard. Before dealing with the various issues raised, certain basic facts need be stated.
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