9911796707
TMI Blog1987 (2) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... hough the facts giving rise to this appeal lie in a narrow compass, the issue involved is of considerable importance. The assessee is an individual. The assessment year involved is 1981-82 for which the relevant accounting year ended on 2037 Ram Navami. The assessee is a partner in the firm East India Transport Agency. The said firm changed its accounting year from Ram Navami to 30th June as a result of which there was no assessment of the firm for the assessment year 1981-82. The assessee accordingly had no share income from the firm and for the assessment year under consideration the assessee has not, therefore, shown any income from the firm. However, before the ITO, the assessee claimed that interest to the tune of Rs. 29,195 paid by hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs of the loan capital and the payment of interest amount are not in dispute. The AAC was of the view that the assessee suffered a loss by way of payment of interest on the borrowed capital during the relevant previous year and so as per provision of section 70(1), he is entitled to the set off of the loss against the income of the said year. The ITO was accordingly directed to allow deduction of the interest amount of Rs. 29,195 from the business income of the assessee for the year. Aggrieved, the department has come up in second appeal before the Tribunal. 5. Shri S. K. Lahiri, the learned departmental representative submitted that section 67 of the Act lays down the method of computing a partner's share in the income of the firm. Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered the rival contentions as also the facts on record. There is no dispute in this case about the material facts which have already been stated above. The question which required consideration is whether the expenditure of Rs. 29,195 incurred by the assessee on the capital borrowed for the purposes of investment in the firm in which he is a partner is allowable as deduction in the computation of his income for the assessment year 1981-82. 8. In the case of CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 their Lordships of the Supreme Court considered the question as whether interest on moneys borrowed for investment in shares is an allowable expenditure under section 57(iii) of the Act, when the shares have not yielded any return in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was not share income from the firm in which the assessee was a partner in the accounting year relevant to the assessment year 1963-64. The assessee claimed deduction on account of interest paid on the capital borrowed for the purpose of investment in the firm in which he is a partner. On page 412 their Lordships observed that it is true that under section 67(3) the assessee was entitled to a deduction of the interest paid on the capital borrowed by him for investment in order to derive the share income from a firm and this can be allowed as deduction against the share income which accrues to him from the firm. While following the decision of the Supreme Court in the case of Rajendra Prasad Moody their Lordships of the Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. Thus, even if no income is made or earned, an expenditure laid out or expended wholly or exclusively for the purpose of making or earning income is allowable under section 57(iii). The language of section 67(3) is entirely different. Section 67(3) reads as under: "(3) Any interest paid by a partner on capital borrowed by him for the purpose of investment in the firm shall, in computing his income chargeable under the head 'profits and gains of business or profession' in respect of his share in the income of the firm, be deducted from the share." 11. Section 67 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the assessee is a partner. If a claim is negatived on the phraseology of section 67(3), the assessee cannot fall back on section 36(1) (iii) which is in the nature of a general provision relating to all businesses. In such a situation section 36(1) (iii) will have no application and the claim for deduction cannot be allowed under the provision of this section. 13. The view that we have taken finds full support from the decision of the Madras High Court in the case of M. S. P. Raja. In this case also the Madras High Court was concerned with a similar question. It was held that section 67(3) proceeded on the basis that in computing the income chargeable on the profits and gains of business or profession, which the share income would ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
