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TMI Blog1999 (2) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... h were run by the members of the HUF, namely, M/s Laxmi Vijay Hosiery Works and M/s Harivallabh Mulchand. As the assessee did not make payment of the amount payable by him to other members of the HUF or to the firms named hereinabove, his account was debited in the books of the said firms. 4. As the assessee was indebted to the said firms and his account was debited in the above-named two firms, the assessee had to pay interest to the said firms. The assessee was also doing business of money-lending and he had also received income from the business of money-lending during the asst. yrs. 1966-67 to 1971-72, which are the relevant assessment years, The assessee claimed deduction by way of business expenditure of the amount of interest which the assessee had paid to the above-named two firms from the interest income which he had received from his business of money-lending. The deduction claimed by the assessee was Rs. 28,334 for the asst. yr. 1966-67 out of his total business income received for the said assessment year, which was Rs. 42,186. For different assessment years income earned by the assessee from his money-lending business and the amount of interest paid by the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure which can be allowed should be wholly and exclusively for the purpose of the business and in the instant case, as the assessee had not paid the amount of interest for the purpose of his business. According to the learned advocate, the Tribunal had committed an error by taking a different view then the one taken by the AO. He has relied upon the judgments delivered in the cases of Gopaldas Dahyabhai Lavsi vs. CIT (1977) 108 ITR 531 (Guj): TC 17R.996 and Bai Bhuriben Lallubhai vs. CIT (1956) 29 ITR 543 (Bom): TC 41R.715. 9. On the other hand, learned advocate Shri D.A. Mehta appearing for the assessee has submitted that the view taken by the Tribunal in the matter of allowing interest paid to the firms as business expenditure is just and proper. He has submitted that had the assessee paid his dues at the relevant time in pursuance of the partition deed, his funds invested in money-lending business would have been reduced to that extent and in that event he would have earned less interest from his money-lending business. He has submitted that instead of using funds from his business, he permitted the family firms to debit his account so that the assessee can keep his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to hereinabove because certain amount had to be paid by the assessee in pursuance of the partial partition of the HUF of Harivallabh Mulchand. The assessee had received certain assets in pursuance of the partial partition and as value of the said assets was more than what he was entitled to, the assessee had to make some payment to other members of the family so as to make final financial adjustments. Instead of paying the said amount in cash, the assessee preferred to delay the payment by getting his accounts debited in the said firms. By no stretch of imagination it can be said that the amount which was so debited was used by the assessee for his business purpose. If the amount which was debited was not used for the business purpose, the amount of interest paid thereon can never be treated as an expenditure laid out or expended wholly and exclusively for the purpose of the business of the assessee which can be allowed in computing the income chargeable under the head "Profits and gains of business or profession". The deduction which is allowed under the provisions of s. 37 is an expenditure laid out or expended wholly and exclusively for the purposes of the business. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had to make in pursuance of the partial partition. The immediate purpose was definitely not business as suggested by the learned advocate for the assessee. At the relevant time it was obligatory on the part of the assessee to make the payment to the other members of the HUF in pursuance of the partial partition and non-withdrawal of funds invested in the assessee's business of money-lending or keeping his capital in his money-lending business intact was merely incidental. 14. From the facts of the case it is also clear that account of the assessee was debited to meet his personal obligation and not the obligation of his business and, therefore, the expenditure incurred by the assessee by paying interest on the amount so debited in the accounts of the firms referred to hereinabove was not for the purpose of carrying on the business. Thus, the expenditure was not incurred by the assessee in his capacity as a person carrying on business and, therefore, the expenditure incurred in the nature of interest, by no stretch of imagination, be regarded as business expenditure. 15. So as to enable an assessee to claim the deduction in respect of interest on borrowed capital, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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