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TMI Blog1987 (3) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... er share is 25%. The partnership firm has seven partners including the assessee. One of the partners is a minor-she is the daughter of the assessee and the extent of her interest in the partnership business is 25%. The partnership firm is running a cinema theatre, M/s. Kamal Talkies, taken on lease. The talkies originally belonged to one Jainarayana Misra, who sold it to one Hashmatunnisa Begum on September 1, 1966 subject to reconveyance of the same in his favour or in favour of his nominees on payment of Rs. 4,00,000 before August 30, 1974. Jainarayana Misra executed a registered deed dated September 19, 1970, assigning the right to repurchase it in favour of Shri Gaffar Jaji Shukur and three others, who, in turn, entered into an agreement to assign their rights or interests in favour of M/s. Kamal Enterprises for a consideration of Rs. 1,25,000. A separate agreement was executed on January 8, 1971, between M/s. Hashmatunnisa Begum and the seven persons who subsequently became the partners of the partnership firm, known as " M/s. Kamal Enterprises stipulating that out of the consideration of Rs. 4,00,000, half of it, namely, Rs. 2,00,000, was to be paid immediately and the balanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Officer passed revised order disallowing the claim. The Income-tax Appellate Tribunal, on appeal, held that section 67(3) of the Act was not applicable. The entries in the books of account militated against the contention of the assessee as regards the applicability of section 67(3). The Tribunal also was of the view that " it may be true that Smt. Rahim Khatoon was paying the lease amount by way of cheques in favour of Smt. Hashmatunnisa Begum and the sum of Rs. 24,000 was being adjusted towards the balance of consideration of Rs. 2 lakhs due to Smt. Hashmatunnisa Begum. But it is too much to say that this represents the interest amount on the sum of Rs. 2 lakhs due by the firm to Smt. Hashmatunnisa Begum in the absence of any mention about that fact either in the partnership deed or in any of the documents which have been brought to our notice." As already stated, at the instance of the assessee the aforesaid two questions were referred to this court. Section 67 of the Act deals with the method of computing a partner's share in the income of the firm. Sub-section (3) enjoins that any interest paid by a partner on capital borrowed by him for the purpose of investment in the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties of the second part to the party of the first part by way of Cheque No. 74,153 dated January 8, 1971, drawn on the Syndicate Bank (Basheer Bagh Branch), Hyderabad, as earnest money, and the balance of Rs. 2,00,000 (Rupees two lakhs only) has been agreed to be paid by the parties of the second part to the party of the first part in five equal instalments within five years from the date of this agreement, the PARTY OF THE FIRST PART hereby agrees and undertakes to reconvey the property known as Kamal Talkies situated at Chaderghat, Hyderabad, fully described in the schedule hereinafter to the parties of the second part as per the terms of this agreement. On receipt of the above payments, the party of the first part shall execute a registered sale deed in respect of the said property in favour of the parties of the second part. " For the assessee, it is contended that under section 37(1) of the Act, the expenditure incurred by the assessee by way of payment of interest on the unpaid purchase money is a claimable deduction. Since the expenditure was incurred wholly and exclusively for the purpose of business, it did not fall within the ambit of sections 30 to 36 and it was neith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seven individuals either jointly or severally. The facts of the case are somewhat parallel to Bombay Steam Navigation Co. (1953) Pvt. Ltd. v. CIT [1965] 56 ITR 52, decided by the Supreme Court. As a result of amalgamation of two companies, certain amount had to be paid by one company to another and the unpaid money carried interest at the rate of 6%. In respect of the interest amount, the question that arose was whether it was allowable as a deduction under section 10(2)(iii) or 10(2)(xv) of the Indian Income-tax Act, 1922, in computing its profits. It may be mentioned that section 10(2)(iii) of the 1922 Act is in pari materia with section 36(1)(iii) of the present Act. Likewise, section 10(2)(xv) of the 1922 Act is in pari materia with section 37(1) of the present Act. After holding that section 10(2)(iii) was not attracted since admittedly no amount was borrowed and, therefore, the interest paid did not qualify for deduction, the Supreme Court held, after referring to its earlier decision in State of Madras v. G. J. Coelho [1964] 53 ITR 186, as follows (p. 61): " The test laid down by this court, therefore, was that expenditure made under a transaction which is so closely rela ..... X X X X Extracts X X X X X X X X Extracts X X X X
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