M S P RAJA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) "Whether, on the facts and in the circumstances of the case, the disallowance of the claim for deduction of interest under section 36(1)(iii) of the income-tax Act, 1961, amounting to Rs. 12, 198 or any part thereof in the case of Shri M. S. P. Raja and Rs. 26, 940 or any part thereof in the case of Shri M. S. P. Rajes is lawful ?" *The reference is common to two assesses as the facts in each of these cases are identical. M. S. P. Rajah and M. S. P. Rajes are brothers. They were partners in two firms known as "Messrs. M. S. P. Nadar Sons" and "Messrs. Hill Tiller and Company". In September, 1962, that is, during the financial year 1962-63, the two assessees constituted another firm called "Riverdale Estate", which is said to be an estate raising mainly coffee in Yercaud. Each of them contributed Rs. 3, 00, 000 for the purchase of the said agricultural estate.

(2.) THE capital was provided by the two assessees by withdrawal of a like sum from the firm of Messrs. M. S. P. Nadar Sons with which they had a running current account. To the said account there are debits on account of drawings for personal income-tax, life insurance premia, etc. While the firm of Messrs. M. S. P. Nadar Sons gave credit to the two assessees in regard to the assessees on the drawings made by them at 9 per cent. per annum. THE net result was that M. S. P. Rajah had to pay Rs. 18, 236 and M. S. P. Rajes Rs. 33, 422 as interest on the debit balances in their account, as mentioned above. THEses payments of interest were for the accounting year ended March 31, 1964. THE relevant assessment year with which we are now concerned is 1964-65.THE two assessees claimed before the Income-tax Officer deduction for the aforesaid sums of Rs. 18, 236 and Rs. 33, 422 under section 36(1)(iii) of the Income-tax Act, 1961, against their share income from the two partnership concerns, namely, "M. S. P. Nadar Sons" and "Hill Tiller and Company". THE Income-tax Officer allowed a deduction to the extent of certain estimated amounts which, according to him, represented the allowable deductions under the provision mentioned above. It is not necessary for us to go into the details of the figures give by the Income-tax Officer because these figures have undergone variation at the successive stages of the appeal before the Appellate Assistant Commissioner and before the Tribunal.It may be mentioned here that the amounts which remained disallowed as a result of the Tribunal's order are Rs. 12, 198 in the case of M. S. P. Rajah and Rs. 26, 940 in the case of M. S. P. Rajes.

(3.) THE question was where he was entitled to deduction of the interest paid by him on so much of the capital borrowed for business purposes as was represented by the agricultural lands got in, under section 10(2) (iii) of the Act of 1922, in computing the profits and gains of his money-lending business. When the matter came on reference to this court, it quoted with approval the passage from the judgment in Provident Investment Company Ltd., set out already. This court held, after discussing the other authorities on the point, that the agricultural activities of the assessee were inextricable mixed with and incidental to the money-lending business and that the assessee was not to be deprived of the advantages conferred by section 10(2)(iii) because the capital benefiting happened to produce a non-taxable income.THE same question as to whether in a single business there could be a partial disallowance, came up before the Supreme Court in a few cases. In Commissioner of Income-tax v. C. Parakh & Co. (India) Ltd., the assessee carried on a single business at a number of places. In that case the Supreme Court was concerned with the head officer in Bombay and a branch office at Karachi. THE assessee was carrying on large-scale business in cotton both in Bombay as well as in Karachi. It made a total profits of over Rs. 15, 00, 000, of which roughly Rs. 9, 00, 000 represented the profits earned in Bombay and Rs. 6, 00, 000 at Karachi. It had a managing agent to whom remuneration had been paid at the rate of 20 per cent. of the profits.