1980 (7) TMI 51 - HC - Income Tax

Summary

Issues Involved:
1. Deductibility of interest deficit in determining total income.
2. Application of legal principles from previous judgments and Supreme Court decisions.

Summary:

Issue 1: Deductibility of Interest Deficit

The primary question was whether the interest deficit of Rs. 8,666 was deductible while determining the total income of the assessee for the assessment year 1969-70. The assessee claimed a deduction of Rs. 33,516 for interest paid to Harivallabhdas Kalidas Estate, which was partly for investment in shares and partly for personal liabilities. The Income Tax Officer (ITO) allowed only Rs. 24,849 as deductible interest, proportionate to the withdrawals for investment purposes. The Appellate Assistant Commissioner (AAC) and the Tribunal upheld this decision, leading to the present reference.

Issue 2: Application of Legal Principles

The court referred to several previous decisions, including Smt. Padmavati Jaykrishna v. CIT [1975] 101 ITR 153 (Guj), CIT v. Kasturbhai Lalbhai [1968] 70 ITR 267, and CIT v. Mrs. Indumati Ratanlal [1968] 70 ITR 353. The principles established in these cases were reiterated, emphasizing that for an expenditure to be deductible u/s 57(iii) of the I.T. Act, 1961, it must be incurred wholly and exclusively for the purpose of earning income. The court also considered the Supreme Court's decision in Seth R. Dalmia v. CIT [1977] 110 ITR 644, which aligned with the principles laid down by the Bombay High Court in CIT v. H. H. Maharani Shri Vijaykuverba Saheb of Morvi [1975] 100 ITR 67.

The court concluded that the legal principles from Virmati Ramkrishna's case were applicable and not affected by subsequent Supreme Court decisions. Therefore, the interest deficit of Rs. 8,666 was not deductible while determining the total income of the assessee.

Conclusion:

The court answered the question in the affirmative, in favor of the revenue and against the assessee. The assessee was directed to pay the costs of the reference to the Commissioner. Additionally, the court granted a certificate for leave to appeal to the Supreme Court, noting that appeals against similar decisions were pending before the Supreme Court.