COMMISSIONER OF INCOME TAX Vs. RAJKOT SEEDS OIL AND BULLION MERCHANTS ASSOCIATION LIMITED

JUDGEMENT

(1.) IN this case, at the instance of revenue out of the following four questions the first three question and at the instance of the assessee the fourth question have been referred to us by the Tribunal for our opinion :

(2.) THE facts leading to this reference may now be shortly stated : The assessee is a limited company registered under the provisions of the Indian Companies Act, 1913. The relevant assessment years are 1960 -61, 1961 -62, 1962 -63 and 1963 -64. The point involved in this reference is whether the assessee, the respondent in this reference, is entitled to claim deduction of interest under section 9(1)(iv) of the Indian Income -tax Act, 1922, so far as assessment year 1960 -61 and 1961 -62 are concerned, and under section 24(1)(vi) of the Income -tax Act, 1961, so far as assessment years 1962 -63 and 1963 -64 are concerned. The contention of the assessee in these proceedings has been that it has paid interest on borrowed capital for acquiring the house property in question.

(3.) FOR the assessment year 1958 -59 and 1959 -60, the assessee -company had claimed deduction of the amount of interest paid on the deposits on the ground that this interest had been paid by the assessee -company for the construction of the house property. The claim for assessment years 1958 -59 and 1959 -60 was disallowed by the Income -tax Officer but was allowed by the Appellate Assistant Commissioner and the matter was taken to the Tribunal. For those two years the Tribunal held that the assessee -company was not entitled to the deduction claimed by it. In view of this decision of the Tribunal in respect of this very amount for the assessment year 1958 -59 and 1959 -60, when thee question arose of allowing deduction of interest on the deposit amounts so far as assessment year 1960 -61 to 1963 -64 were concerned, the Income -tax Officer disallowed the claim of the assessee -company for deduction of amounts of interest for the assessment year under consideration in this reference. The assessee -company preferred apples to the Appellate Assistant Commissioner. In the meanwhile, for the assessment year 1958 -59 and 1959 -60, the assessee -company had taken the matter by way of a reference to the High Court and at the instance of the assessee -company the Tribunal had referred the case to the High Court. The decision of the High Court on that reference in connection with the assessment year 1958 -59 and 1959 -60 is Rajkot Seeds, Oil and Bullion Merchants Assn. Ltd. v. Commissioner of Income -tax The decision was delivered by this High Court on August 28, 1963. It may be pointed out that for the assessment year 1958 -59 and 1959 -60, the contention of the assessee -company was that the amount of interest paid by it was in respect of borrowed capital for constructing the house property. The High Court in Rajkot Seeds, Oil and Merchants Ass. Ltd. v. Commissioner of Income -tax held that since it was thee association which constructed the property and not the assessee -company and since the association did so by spending a part of the deposits lying with it to the credit of its members, even assuming that the amount of Rs. 2,29,015 was borrowed capital, it would be the association and not the assessee -company which could be said to have constructed the property in question with borrowed capital. The High Court further held that there was no nexus or connection between the capital borrowed for the construction of the building and that the interest payable under the resolution. Hence, this High Court held that the interest claimed by the assessee -company as interest on borrowed capital for construction the house property in question was not allowable under section 9(1)(iv) of the Act of 1922.