A.P.Misra, J. - (1.) Heard learned counsel for the parties.
(2.) The present reference arises under Section 256(1) of the Income-tax Act, 1961, and the Tribunal has referred the following question to be answered by this court which is quoted as under : "Whether, on the facts and in the circumstances of the case, the learned Tribunal was legally justified in holding that the payment of interest amounting to Rs. 97,290 was allowable in terms of Clause (iii) of Sub-clause (1) of Section 36 of the Act in the computation of the business income of the assessee ? (Ritz Continental Hotels Ltd. v. CIT [1978] 114 ITR 554 (Cal))."
(3.) The assessee-company is wholly owned by the Government of Uttar-Pradesh and has been carrying on the business of processing of seeds. For this purpose, it has set up a factory at village Nagla and obtained loans from the State Bank of India amounting to Rs. 1,32,77,660 whereon interest in question amounting to Rs. 97,289.52 was paid by the assessee. This interest was disallowed by the authorities below being of capital nature. The assessee's contention is that he has not acquired any enduring asset by borrowing money from the State Bank of India and that the said loan was taken for the purpose of carrying on the assessee's business and as such it was allowable in terms of Clause (iii) of Sub-section (1) of Section 36 of the Income-tax Act, 1961. The assessee relied on the decision reported in the case of India Cements Ltd. [1966] 60 ITR 52 (SC), while the Revenue relied on the decision reported in the case of Ritz Continental Hotels Ltd. [1978] 114 ITR 554 (Cal).;