COMMISSIONER OF INCOME TAX Vs. ORIENT TRADING COMPANY

JUDGEMENT

(1.) THE Tribunal has referred the following seven questions for opinion of this Court under S. 256(1) of the IT Act, 1961 :

(2.) AS regards questions Nos. 4 and 5, the point which arises for consideration is covered by the decision of the Supreme Court in Keshavaji Ravji & Co. vs. CIT (1990) 82 CTR (SC) 123 : (1990) 183 ITR 1 (SC). So also, the point which arises for consideration because of question No. 6 is covered by the decision of this Court in IT Ref. No. 73 of 1980 decided on 20th/21st Jan., 1993. Therefore, the facts pertaining to those questions need not be stated.

(3.) IN its reply to the notice, the assessee contended that, in the course of its business, it was usual for the assessee to borrow money and at the same time to give loans to third parties and to its partners for business consideration. It used to purchase and sell goods on credit. In any view of the matter, no portion of any capital borrowed could be said to have been utilised for purposes other than business and, therefore, the interest paid could not be disallowed. In the alternative, it was contended that Rs. 57,264 paid as interest to the principals on account of late payment of Hundies and the purchase price of goods, in any case, will have to be excluded. It gave its own calculation and stated that only Rs. 10,807 at the highest could be disallowed. The figure of Rs. 10,807 was worked out as under : The CIT was of the view that what was required to be worked out was the net amount of interest admissible as deduction under S. 36(1)(iii) or S. 37 of the Act. He then held as under :