V.G. Oak, C.J. - (1.) THIS is a reference under Section 66 of the Indian Income-tax Act, 1922. The assessee is a Hindu undivided family. Seth Banarsi Das Gupta is the karta of the joint family. The assessment year is 1953-54. The accounting period ended on June 30, 1952.
(2.) THE assessee was the owner of a one-third share in Messrs. S. B. Sugar Mills, Bijnore. He entered into an agreement with Seth Kanshi Ram on July 30, 1950, and obtained a lease of l/6th share in the said mills. THE assessee had to pay an annual rent of Rs. 50,000 to Seth Kanshi Ram under the lease. Subsequently, Kanshi Ram thought that the lease executed by him was against his interest. He, therefore, filed a civil suit repudiating the lease. THE parties to the suit entered into a compromise. Under the compromise, the lessee was to receive a total of Rs. 68,000 from the lessor. Accordingly, the assessee received a sum of Rs. 16,000 from Kanshi Ram. Under similar circumstances, the assessee received another sum of Rs. 39,262 from Seth Debi Chand. THE Income-tax Officer held that these receipts of Rs. 16,000 and Rs. 39,262 were liable to be taxed as income in the hands of the assessee. This decision was upheld by the Appellate Tribunal. The assessee obtained 1/6th share in S. B. Sugar Mills under a deed of exchange. The assessee claimed depreciation on machinery on account of the assessee's 1/6th share in S. B. Sugar Mills. The claim for depreciation was not allowed by the income-tax authorities. This view was upheld in appeal by the Appellate Tribunal. During the accounting period the assessee paid a total sum of Rs. 1,06,039 towards interest on borrowed money. The Income-tax Officer allowed deduction on account of this entire sum of Rs. 1,06,039. That sum included a smaller sum of Rs. 75,211 paid by the assessee towards interest on a loan taken for the purchase of shares of Messrs. Jaswant Sugar Mills. The Appellate Assistant Commissioner thought that the assessee was not entitled to have a deduction for that amount of Rs. 75,211. A notice was, therefore, given to the assessee to show cause why that amount should not be disallowed. After hearing the assessee, the Appellate Assistant Commissioner confirmed his provisional finding that the assessee was not entitled to any deduction on account of the sum of Rs. 75,211 paid as interest. When the matter went before the Appellate Tribunal, the Tribunal disagreed with the Appellate Assistant Commissioner. The Tribunal held that the assessee was entitled to deduction on account of the sum of Rs. 75,211 paid as interest.
(3.) BOTH the parties were dissatisfied with certain parts of the judgment of the Appellate Tribunal. The parties, therefore, applied for a reference to the court under Section 66(1) of the Act. The Appellate Tribunal, Delhi Bench "A", has referred the following four questions of law to this court: "(1) Whether, on the facts and in the circumstances of the case, the sums of Rs. 16,000 and Rs. 39,262 received from Seth Kanshi Ram and Seth Devi Chand, respectively, were assessable as income of the assessee ? (2) Whether, on the facts and circumstances of the case, what was acquired by the assessee was l/6th share of the sugar mills or merely l/6th share of the interest which the assessee's vendor had in the said sugar mills. (3) Whether, on the facts and in the circumstances of the case, depreciation is allowable on the 1/6th share in S. B. Sugar Mills, Bijnore, which the assessee had acquired from Seth Shiv Prasad ? (4) Whether, on the facts and circumstances of the case, the assessee is entitled to a deduction of Rs. 75,211 on account of interest paid on moneys borrowed and used in acquiring the shares of Jaswant Sugar Mills Ltd. ?" Question No. 1.;