1960 (1) TMI 56 - HC - Income Tax

Summary

Issues:
1. Deductibility of interest paid by the assessee on money borrowed for making advances to unregistered firms.

Analysis:
The judgment pertains to the assessment of an individual, a partner in two unregistered firms, regarding the deductibility of interest paid on money borrowed for advancing to the firms. The Income-tax Officer initially disallowed the deduction, stating that the interest payments were not for the individual's business but for the firms. The Appellate Tribunal, relying on precedent, allowed the deduction, considering the interest as a deduction from the individual's share in the firm's profits.

The matter was previously brought to the court, but due to insufficient information, the case was returned for proper clarification. The Tribunal concluded that the borrowed funds were utilized in the firms' businesses, although specific borrowings could not be identified. The deduction claim was based on section 10(2)(iii) of the Income-tax Act, which allows deduction for interest paid on capital borrowed for business purposes.

The court highlighted the distinction between registered and unregistered firms under the Act. In the case of unregistered firms, the firm itself is assessed and liable for tax, not the individual partners. Since the two unregistered firms were assessed as separate units, the individual partner could not claim a deduction for interest paid on borrowed funds for the firms.

The court differentiated the case from a previous judgment involving a partner in a registered firm, emphasizing that in unregistered firms, the firm is the assessee, while in registered firms, each partner is assessed individually. The court rejected the argument that the interest was paid for the individual's money-lending business, as there was no evidence of such a business generating taxable profits.

Ultimately, the court held that the individual was not entitled to a deduction for the interest paid on borrowed funds for the unregistered firms. The individual was directed to pay the costs of the Commissioner of Income-tax, with counsel fees fixed at &8377;100.