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TMI Blog2001 (4) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... se and made the reference on the following questions of law to this High Court for the opinion : "(i) Whether, in the facts and in the circumstances of the case, the Tribunal was justified in law in disallowing the interest on the entire debit balances including opening balance of the partners ? (ii) Whether, in the facts and in the circumstances of the case, the Tribunal was justified in allowing the Departmental appeals on fallowing its earlier order rendered in Miscellaneous Application No. 65/Ind. of 1982 and in holding that the decision reported in CIT v. Alok Paper Industries [1982] 138 ITR 729 (MP) was inapplicable? On this reference, this court is adjudicating in view of the submissions advanced by Shri G. M. Chaphekar, instru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d firm was not providing for charging of interest on debit balances in the capital accounts of the partners. The appellate authority held that the facts of the matter were within the four corners of the ratio of the judgment of the Division Bench of the High Court of Madhya Pradesh and it being binding on it, it set aside the order of assessment passed by the Assessing Officer and allowed the appeal. The Income-tax Department challenged the said judgment and order before the Tribunal and the Tribunal. by its judgment and order decided that the judgment and order passed by the appellate authority was incorrect and erroneous and it did set aside that by confirming the judgment and order passed by the Assessing Officer. A prayer was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of the assessee's claim for interest payment in respect of its borrowings ?" The same ratio was followed by the Division Bench of this court in the matter of D H Secheron Electrodes Pvt. Ltd. v. CIT [1983] 142 ITR 528. It held that under section 36(1)(iii) of the Income-tax Act, 1961, to sustain a claim for deduction of the amount of interest, all that is necessary to be done is firstly to show that the capital must have been borrowed by the assessee ; secondly, it must have been borrowed for the purpose of the business or profession of the assessee ; and, thirdly that the assessee should have paid that amount by way of interest. In the said case the Division Bench of this court held that the Tribunal did not give any finding holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal also dislodged the finding of the appellate authority that the Department failed to establish a direct nexus between the borrowings and the withdrawals made by the partners and as such the order which was passed by the Assessing Officer was not sustainable. Shri Chaphekar farther submitted that instead of giving the reasons as to how the judgment of the Division Bench of the High Court of M. P. reported in CIT v. Alok, paper Industries [1982] 138 ITR 729 and D H Secheron Electrodes Pvt. Ltd. v. CIT [1983] 142 ITR 528, were not applicable to the present case, it set aside the order passed by the appellate authority and confirmed the order passed by the Assessing Officer. Shri lain, counsel appearing for the Income-tax Department, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e called legal. Thus, carrying further the ratio of the judgments of the Division Bench of this court reported in CIT v. Alok Paper Industries [1982] 138 ITR 729 and D H Secheron Electrodes Pvt. Ltd. v. CIT [1983] 142 ITR 528, this court answers the reference by holding that : "(i) In the facts and in the circumstances of the present case, the Tribunal was not justified in law in disallowing the interest on the entire debit balances, including opening balances of the partners. (ii) In the facts and in the circumstances of the case, the Tribunal was not justified in allowing the Departmental appeals on fallowing its earlier orders rendered in Miscellaneous Application No. 65/Ind/82 and in holding that the decision reported in CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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