COMMISSIONER OF INCOME TAX Vs. MADAN LAL JAIN

JUDGEMENT

(1.) A very short question is involved in this reference under the IT Act at the instance of the CIT. The reference arises out of the assessment of Shri Madan Lal Jain for the asst. year 1963 -64. The assessee, an individual, is a partner in two firms M/s. Kanshi Ram Shital Kumar and M/s. Jain Finance Co. M/s. Kanshi Ram Shital Kumar, adopted the financial year as its previous year and the assessee derived a share income of Rs. 6 from this firm during the financial year 1962 -63 relevant for the asst. year 1963 -64. He had besides some property income, speculation profits and capital gains.

(2.) THE assessee had become a partner in M/s. Jain Finance Co. under an instrument of partnership dt. 10th May, 1962. But the accounts of M/s. Jain Finance Co. were closed for the first time in May, 1963, and the previous year of that firm was the year which ended on the corresponding day in May of each year. The result was that in respect of the share income from M/s. Jain Finance Co. the previous year of the assessee ran from May to May and the share income attributable to the period 10th May, 1962, to 9th May, 1963, became assessable in the asst. year 1964 -65 for the first time. There was no share income from firm which could be assessed in the asst. year 1963 -64. However, in order to invest the capital of Rs. 2,00,000 which was obligatory on him under cl. (5) of the instrument of partnership dt. 10th May, 1962, of M/s. Jain Finance Co. the assessee had to borrow the said sum of Rs. 2,00,000 from M/s. Kanshi Ram Shital Kumar. On this loan he had to pay interest at 12% p.a. Thus, for the period of 10th May, 1962, to 31st March, 1963, he was called upon to pay interest of Rs. 21,400 to the firm of M/s. Kanshi Ram Shital Kumar and since that firm maintained accounts on the basis of the financial year the amount of Rs. 21,400 became due from him to that firm on 31st March, 1963. The assessee claimed that this sum of Rs. 21,400 should be deducted in the computation of his assessable income for the asst. year 1963 -64.

(3.) THE CIT is aggrieved and has come up to this Court on reference on the following question of law :