Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding
  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

Home Case Index All Cases Income Tax Income Tax + HC Income Tax - 1990 (10) TMI HC This

  • Login
  • Summary

Forgot password       New User/ Regiser

⇒ Register to get Live Demo



 

1990 (10) TMI 7 - HC - Income Tax

Issues:
Whether the assessee is entitled to deduction on account of interest paid on capital borrowed for investment in a firm under section 67(3) or section 36(1)(iii) of the Income-tax Act, 1961.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961 for the assessment year 1981-82. The assessee, a partner in a firm, claimed deduction for interest paid on capital borrowed for investment in the firm, despite no share income from the firm due to a change in its accounting year. The Income-tax Officer disallowed the deduction, stating no income from the firm justified disallowance. The Appellate Assistant Commissioner allowed the deduction, considering it a business loss under section 70(1) to be set off against other income. The Department appealed to the Tribunal against this decision.

The Tribunal held that to claim under section 67(3), there must be share income from the firm. If disallowed under section 67(3), section 36(1)(iii) cannot be used for deduction. The High Court agreed with the Tribunal, emphasizing that section 67(3) allows deduction for interest paid on capital borrowed for investment in the firm only if the partner has income from the firm. Referring to a Madras High Court decision, the court reiterated that if a claim under section 67(3) is negatived, section 36(1)(iii) cannot be used for deduction.

Therefore, the court concluded that the assessee was not entitled to deduction for interest paid on capital borrowed for investment in the firm due to the absence of share income from the firm. The court ruled in favor of the Revenue and against the assessee, denying the deduction claim under both sections 67(3) and 36(1)(iii).

This judgment clarifies the conditions for claiming deductions under specific sections of the Income-tax Act concerning interest paid on capital borrowed for investment in a firm. It highlights the requirement of share income from the firm to be eligible for deductions under section 67(3) and the inability to fallback on section 36(1)(iii) if disallowed under section 67(3).

 

 

 

 

Quick Updates:Latest Updates