TRIKAMLAL MANEKLAL Vs. STATE OF MAHARASHTRA

JUDGEMENT

(1.) The Income-tax Appellate Tribunal has referred the following two questions for decision to us:

(2.) The facts which give rise to the two questions may be briefly set out. The assessee was assessed in the year 1951-52 for the accounting year Samvat Year 2006 in respect of Income from business in speculation, salary from Ind. Corporation Ltd. and T. Maneklal Ltd., income from partnership business in the names of Messrs. T. Maneklal Mfg. Co. and T. Maneklal Ltd., and income from "other sources" such as interest, director's fees and not dividend. Against his income from "other sources" the assessee claimed a deduction of Rs. 9,464/- being the interest paid on the capital of Rs. 1,80,000/- borrowed for payment of income-tax liability. This claim of the assessee was disallowed by the Income-tax Officer. The assessee appealed to the A.A.C. The A.A.C. also disallowed the claim, and the matter was brought in appeal before the Income-tax Appellate Tribunal. It was contended before the Tribunal that the deduction claimed was allowable as the capital borrowed even though utilised for payment of tax liability was instrumental in not disturbing the protective assets, i.e., capital of the firm which was utilised for the purpose of earning income from other sources. The Tribunal accepted the contention of the assessee but observed that it was not in a position to verify the balance-sheet dated 31-3-1951 produced before it. The Tribunal then proceeded to pass an order setting aside the order of the A.A.C. and directed that officer to take the appeal again on his file and to dispose it of on the merits. The Tribunal also passed a formal order allowing the appeal.

(3.) Against this order no application was made for reference to this Court under Section 66 of the Indian Income-tax Act. Pursuant to the order of remand, the A.A.C. again took up the case on his file and verified the entries in the balance-sheet and held that the claim for deduction of Rs. 9,307/- as interest paid on the capital borrowed was allowable. Against the order of the A.A.C., the Income-tax Officer appealed to the Appellate Tribunal. Before the Tribunal the quantum of interest to be allowed was not contested but it was pleaded that deduction of interest claimed by the assessee could not be allowed under Section 12(2) of the Income-tax Act. That argument was founded on a decision of this Court in Bai Bhuriben Lallubhai v. Commissioner of Income-tax, Bombay North, (1956) 29 ITR 543: (AIR 1956 Bom 41) (A). The Tribunal held that the question having been decided by its order dated 12-1-1954 could not be reagitated in the appeal against the order of assessment wherein the claim for interest of the assessee was allowed. The Commissioner of Income-tax thereafter applied to the Tribunal for making a reference to this Court under Section 66 of the Income-tax Act and the two questions which we have already set out above have been referred to this Court.