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TMI Blog1961 (11) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... vate limited company carrying on the business of managing agents of various mills and concerns. It borrowed or accepted on deposit moneys from several persons at different rates of interest and the funds so obtained were made available to several concerns in which the assessee was interested. In the assessment proceeding for the years 1950-51, 195I-52 and 1952-53 the assessee claimed that in the relevant accounting years it had paid certain sums to four ladies by way of interest at 6? per cent. per annum on the moneys borrowed from them and that, therefore, this interest amount should be deducted under section 10(2)(iii) in the computation of its business income for the respective assessment years. The Income-tax Officer made an allowance c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f opinion between the two Members. The question that was referred to the President was, whether on the facts and circumstances of this case the department was right in disallowing the sums of ₹ 21,276, ₹ 32,950 and ₹ 22,552 paid as interest to the depositors. According to the President, the money obtained from the four ladies was not of any material importance to the business of the assessee; that it was not even 10 per cent. of the total assets of the business; that it was not the case of the assessee that any of the borrowings had been utilized in the managing agency business as such and therefore the interest paid to the four ladies could not be claimed as a deduction against the agency commission received by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is necessary is that, first, the money, that is the capital, must have been borrowed by the assessee; secondly, it should have been borrowed for the purposes of the business, profession or vocation of the assessee; and, thirdly, the assessee should have paid the interest amount claimed by him as an allowance under that clause. The interest paid has not been made subject to the test of reasonableness as is bonus or commission under section 10(2)(X). Clause (iii) also does not say that the allowance under that clause shall be such sum as the Income-tax Officer may determine having regard to certain circumstances. Therefore, when the income-tax authorities have found that the borrowing transactions were not illusory or colourable and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res is (i) that the money, the capital, must be borrowed by the assessee; (ii) the amount should have been borrowed for the purpose of the business of the assessee; and (iii) the assessee should have paid as interest the amount claimed as allowance under section 10(2). Now, here, no dispute was ever raised before the income-tax authorities or the Tribunal about the genuineness of the borrowings from the four ladies. It was also not disputed that the capital was borrowed for the purposes of the business of the assessee and was actually utilized in the business and that the interest amounts which the assessee claimed to deduct were in fact paid to the four ladies. All that was urged was that the interest rate of 6? per cent. per annum was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sons v. Commissioner of Income-tax [1954] 26 I.T.R. 265, 290). Both the President and the Accountant Member overlooked the fact that there could be no comparison between the interest paid to the four ladies on the moneys lent by them which was in the nature of fixed deposits and interest payable on current accounts and advances by the assessee. The President also observed that it had not been shown whether the borrowings from the ladies had been utilised in the managing agency business as such or in making advances to industrial concerns. It was not necessary for the assessee to show for the purposes of deduction under clause (iii) whether the money borrowed was utilized for a particular branch of its business. As pointed out in Calico Dye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the taxing authorities or the Tribunal. Indeed, if the Income-tax Officer or the Appellate Assistant Commissioner or the Tribunal had taken the view that the money supplied by the four ladies was not capital borrowed for the purposes of the business of the assessee, then consistently with that view they would have disallowed the whole of the interest allowance claimed by the assessee. This was not done. What these authorities did was to find that the rate of interest of 6? per cent. was unreasonable and scale it down to 3 per cent. This they could not do after having accepted the position that the amount borrowed was for the purposes of the business of the assessee and interest amount was in fact paid by the assessee to the four lad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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