J K BANKERS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under Section 66(2) of the Indian Income-tax Act, 1922. It is a consolidated reference relating to assessment years 1940-41 to 1946-47. The question No. 1 relates to the assessment year 1940-41 alone. The question No. 2 relates to all the assessment years while question No. 3 relates to assessment years 1940-41 to 1944-45. The questions are :

(2.) THE facts giving rise to question No. 1 are these. While examining the account books of the assessee relating to assessment year 1940-41, the Income-tax Officer found that out of its borrowed capital, the assessee-firm had advanced a sum of about Rs. 9 lakhs to its partners but did not charge any interest on such advances. Out of the total interest claimed by the assessee as a deduction, the Income-tax Officer disallowed a sum of Rs. 30,000, representing the interest on the advances made to the partners on the ground that the capital advanced to the partners had not been utilised for business purpose. THE assessee's appeal on this point was rejected by the Appellate Assistant Commissioner of Income-tax. THE assessee then appealed to the Income-tax Appellate Tribunal. THE Tribunal found that out of the total borrowings amounting to Rs. 83,39,903 a sum of Rs. 11,25,572 was advanced to the partners and, as such, the assessee was entitled to a deduction of 72.5/83.3 of the total interest paid and the balance was to be disallowed. THE Tribunal accordingly directed the Income-tax Officer to work out the amount of disallowable interest according to this formula and to amend the assessment order accordingly. THE disallowance in this manner works out to Rs. 36,000 as against Rs. 30,000 disallowed by the Income-tax Officer. THE question No. 1 is as to whether the Tribunal was competent to issue such a direction to the Income-tax Officer.

(3.) DR. Misra, the learned counsel for the department, contends that the powers of the Income-tax Appellate Tribunal are subject to no limitations and, as such, should be treated to include the power of enhancement. He has relied on three cases. The first case is that of Hukumchand Mills Ltd. v. Commissioner of Income-tax, [1967] 63 I.T.R. 232 ; [1967] 1 S.C.R. 463 (S.C.) It is difficult to appreciate how that case supports the contention of the learned counsel. There the Supreme Court, after stating that the powers of the Tribunal in dealing with appeals are expressed in Section 33(4) in the widest possible term, went on to observe at page 237: