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TMI Blog1982 (4) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... , the consumer stores unit of the assessee credited Rs. 11,179 and Rs. 17,956 as interest in the current account of the banking unit and account books of the banking unit showed credit of these sums in the current account of the consumer stores unit. These entries reflected that the banking unit of the assessee advanced loans to its consumer stores unit and interest thereon was credited in the respective account books. The ITO in his original assessments allowed the above amounts as expenditure on capital borrowed. Since under s. 80P(2)(a)(i) of the I.T. Act the income of a society carrying on banking business is exempt from tax, the ITO did not bring to tax the interest income in the banking unit of the society. The ITO later issued a no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores. Though separate sets of account books are maintained for the above business activities, the tax is chargeable on the total income of the assessee and not on separate business activities. Under s. 36(1)(iii) of the I.T. Act, deduction is allowed for the amount of interest paid in respect of capital borrowed for the purposes of the business or profession. Words " borrowed and paid " in these provisions clearly postulate two different entities, one which lends capital and the other which borrows and pays interest. The same entity cannot be its own lender and borrower, nor interest can be paid to self. In a different context, their Lordships of the Supreme Court dealt with a situation somewhat analogous to one in this reference in Kikab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In Kharwar's case it was held that regard must be had to the legal relations arising from a transaction and not to the substance of the transaction. In Kharwar's case [1969] 72 ITR 603 (SC), a firm had transferred its assets, machinery, etc., to a private limited company of which the shares were held by the same persons who constituted the firm. Their Lordships held that the balancing charge was payable by the firm under s. 10(2)(vii) of the Indian I.T. Act, 1922, because two different entities had entered into contract and it did not matter that persons constituting the two different entities were the same. In fact in Kharwar's case the observations made by Bose J. in Kikabhai's case [1953] 24 ITR 506 (SC) were tacitly approved and it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the instant case, the amount of interest claimed as expenditure by the assessee was not allowable because the interest was paid and received by the same person, i. e., the assessee, and in fact there was no payment by one person to another. Learned counsel for the assessee relied on two decisions in support of his case. One is CIT v. Hantapara Tea Co. Ltd. [1973] 89 ITR 258 (SC) and the other is Anil Starch Products Ltd. v. CIT [1966] 59 ITR 514 (Guj). Perusal of these two cases will show that the facts were entirely different and the statement of law will not be applicable to the facts of the case under reference. In Hantapara Tea Co.'s case the assessee carried on the business of manufacture and sale of tea and for this business use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under s. 15C of the Indian I.T. Act, 1922, to the new undertaking the raw material, i. e., industrial starch, produced by the company, should be charged at the market price or the cost price for the purposes of computing the profits and gains of the new undertaking. Again it is obvious that the question raised and answered was entirely different. In both the cited cases the assessee used raw material produced by itself for manufacturing a new product and, therefore, it was held that the market price of the raw material should be taken into consideration for computing the profits of the assessee's business. We, therefore, hold that the interest paid by the consumer store unit of the assessee to its banking department was not an allowable e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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