COMMISSIONER OF INCOME TAX Vs. NARESH CHANDRA BHARGAVA

JUDGEMENT

(1.) IN compliance with the direction of this court under Section 66(2) of the Indian Income -tax Act, 1922 (hereinafter referred to as 'the Act'), the Income -tax Appellate Tribunal, Allahabad, has referred the following question for the opinion of this court:

(2.) THE assessment year involved is 1956 -57, of which the previous year is the calendar year ending on December 31, 1955. During the relevant previous year the assessee derived income under various heads including 6/16ths share in a registered firm of the name and style of M/s. Niranjan Lal Bhargava and Company. He claimed as deduction out of his total income a sum of Rs. 16,588 representing interest on loans from the Allahabad Bank and a Life Insurance Company and costs of litigation with the Allahabad Bank. The assessee had claimed this deduction as a loss in the money -lending business. This claim was turned down by the Income -tax Officer as well as by the Appellate Assistant Commissioner of Income -tax, on the ground that in the previous year the assessee did not carry on any money -lending business nor had the loans been raised in connection with the assessee's business.

(3.) IN the year 1949, the assessee had taken a loan of Rs. 2 lakhs from the Allahabad Bank and another loan of Rs. 25,000 from the Bombay Life Insurance Company. The assessee did not repay the loan in full in accordance with the terms of the agreement and the Allahabad Bank filed a suit on November 15, 1952, for the recovery of the balance with interest. The suit was decreed with costs on April 12, 1955, by the civil judge, Allahabad. The decree included a sum of Rs. 15,270 on account of interest and costs. This figure together with the interest payable to the Bombay Life Insurance Company came to Rs. 16,755. Deducting a sum of Rs. 188 on account of interest received by the assessee, the net interest and costs payable worked out to Rs. 16,588.