VINAY CHANDRA SUVARNA Vs. B MANOHAR

JUDGEMENT

(1.) Assessee has preferred this appeal challenging the concurrent findings recorded by three Authorities that the interest paid on the borrowing is not for the purpose of business and therefore same is not deductable under Section 36(1)(iii) of the Income Tax Act, 1961.

(2.) The assessee is a partnership firm which is running boarding and lodging by name Hotel Roopa in Mangalore. Originally it consisted four partners and on 06.10.2000, one more partner was inducted as a partner. On 20.10.2001, three partners retired from the partnership firm and the business was continued only with the remaining two partners. The assessee firm borrowed a sum of Rs.75,00,000/- from the Bank for the purpose of settling the account to the retiring partners and the claim deducted of Rs.5,04,803/- under Section 36(1)(iii) towards interest on the borrowal made to be Bank. The Assessing Officer rejected the claim of the assessee on the ground that the borrowal has been made for the purpose of discharging the personal liability for the continuing partners of the firm and the payment made to the retiring partners has nothing to do with the business of the firm. Therefore, borrowing cannot be considered has having been made for the purpose of business of the firm. Aggrieved by the said order, the assessee preferred this appeal to the Commissioner of Income-Tax (Appeals) who dismissed the appeal. In second appeal before the Tribunal, arguments of the assessee did not find favour. Therefore, appeal came to be dismissed. Aggrieved by these three orders, the assessee is before this Court.

(3.) This appeal came to be admitted on considering the following substantial questions of law on 09.03.2009, which reads as under: