- (1.) In both the IT References i.e., IT Ref. No. 212 of 1984, which relates to the asst. yrs. 1972-73, 1974-75 and IT Ref. No. 56 of 1986, which relates to the asst. yr. 1975-76, the Tribunal, Allahabad, had referred the identical questions of law under Section 256(1) of the IT Act, 1961, hereinafter referred to as the Act, for opinion to this Court: Whether the Tribunal was correct in holding that, while considering the allowability of interest on borrowed funds from the firm, the account relating to unrealised hiring charges due from the firm could not be taken into account?
(2.) Briefly stated, the facts giving rise to the present references are as follows: The respondent/assessee is a private limited company arrying on the business of transporting of goods and its head office is at Kanpur. On 31st Aug., 1966, it purchased a running business of a firm styled as M/s New Kashmir Oriental Forwarding Agency. Certain loans of the firm were also taken over by the respondent in the process. On 20th Oct., 1969, the respondent entered into an agreement with the firm for hiring of trucks. The agreement stipulated that for each truck the company would receive monthly hiring charges of Rs. 750 per truck. The agreement came into existence long after the borrowing taken over by the company from the firm, whereas Clause 7 of the agreement has stipulated that no interest shall be payable on the hiring charges due from the firm and the company shall not adjust the amount due from the firm against the loan balance of the firm payable by the company. During the assessment years in question the respondent had paid interest to the firm on the loans. It may be mentioned here that three partners of the firm were also the directors of the respondent-company having more than 50 per cent of the shareholding and had substantial interest in the respondent-company. There have been a regular running account in which the borrowing made by the respondent-company from the firm are recorded. It has been going up year after year and in the year in question also there were further borrowings and the interest was being paid by the respondent-company to the firm. In the course of assessment proceedings the ITO has disallowed the interest paid by the respondent-company to the firm. However, in appeal the CIT(A) had allowed the claim of interest, which order has been upheld by the Tribunal.
(3.) We have heard Sri Shambhu Chopra, learned standing counsel for the Revenue. Nobody has appeared on behalf of the respondent/assessee.;