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TMI Blog1993 (7) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 paid by the assessee because of late payments of hundi loans and because of late payments of amounts for the goods purchased by the assessee was justified ? 2. Whether the Appellate Tribunal erred in law in modifying the order of the Commissioner of Income-tax directing the Income-tax Officer to enhance the assessment adding the amount of excess interest of Rs. 53,491 ? 3. Whether the Appellate Tribunal erred in law in directing the Income-tax Officer to enhance the assessment on a proportionate basis after allowing deduction of interest paid by the assessee on hundi loans and on account of late payments made of the purchase price of the goods purchased by the assessee from the interest income of the assessee ? 4. Whether, on the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for late payment of hundi loans and goods purchased was justified. Questions Nos. 1, 2, 3 and 7 can be dealt with together as what is required to be considered as a result of those questions is whether the claim of the assessee for exclusion of interest amount of Rs. 57,264 paid for late payment of hundi loans and goods purchased was justified. During the accounting year relevant to the assessment year 1971-72, the assessee had borrowed money from banks and other depositors for which it paid interest of Rs. 4,91,749. Out of the borrowed money, it had advanced loans to outside parties and also to its partners. As against these advances, it earned interest of Rs. 2,57,193. Before the Income-tax Officer, the assessee claimed deduction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------------------------------- In its reply to the notice, the assessee contended that in the course of its business, it was usual for the assessee to borrow money and at the same time to give loans to third parties and to its partners for business consideration. It used to purchase and sell goods on credit. In any view of the matter, no portion of any capital borrowed could be said to have been utilised for purposes other than business and, therefore, the interest paid could not be disallowed. In the alternative, it was contended that Rs. 57,264 paid as interest to the principals on account of late payment of hundis and the purchase price of goods, in any case, will have to be excluded. It gave its own calculation and stated that only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rked out was the net amount of interest admissible as deduction under section 36(1)(iii) or section 37 of the Act. He then held as under : "...The loans used for business are Rs. 9,09,384 including hundi loans and the interest actually paid including interest for late payments of hundi loans and for late payments on creditors' accounts is Rs. 4,21,212 and not Rs. 3,64,148, as worked out by the assessee after excluding interest for late payments of Rs. 57,264. Out of the total allowance of Rs. 34.6 lakhs, the loans not used for business purposes are Rs. 25.5 lakhs and on a proportionate basis the interest on loans not used for business purposes comes to Rs. 3.10 lakhs against which interest received for non-business loans are Rs. 2.57 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that but for the hundi loans and credit facility for late payment of purchase price, the assessee would have been required to borrow money. Therefore, the amounts of hundi loans and purchase price paid late were rightly treated by the Commissioner of Income-tax as borrowed capital and the amount of Rs. 57,264 paid by way of interest thereon was also rightly treated as interest paid on borrowed capital and on this basis the excess interest of Rs. 53,491 worked out by the Commissioner of Income-tax was rightly disallowed. In our opinion, the facility of drawing hundis and late payment of price of goods purchased by the assessee, cannot be equated with borrowing of capital. Learned counsel appearing for the assessee rightly drew our atten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Commissioner of Income-tax had taken all the relevant aspects into consideration and had found that the net borrowed amount was Rs. 9,09,384. He had worked out the interest paid on borrowed capital for purposes other than business purposes on proportionate basis. Therefore, the question of considering the interest paid by the assessee for late payment of hundi amounts and purchase price was not required to be considered separately. In our opinion, this submission suffers from a fallacy inasmuch as it is presumed that Rs. 57,264 paid as interest was interest paid on borrowed capital. The contention of the assessee before the Commissioner of Income-tax was that the said amount was not by way of interest on borrowed capital. It did ..... X X X X Extracts X X X X X X X X Extracts X X X X
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