KEVALCHAND NEMCHAND MEHTA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE real question that falls to be determined in this case is whether the assessee is entitled to claim a deduction in respect of an amount of Rs. 26,197 being the interest charged by the firm, Kapurchand & Co, of which he was a partner and debited in his account with the firm. We shall presently show how the question actually referred does not reflect the real controversy between the parties.

(2.) THE assessee, Kevalchand Nemchand Mehta, is a partner of the firm of Messrs. Kapurchand & Co. He, in his individual capacity, had a income from house properties, dividends and interest. He also had a personal account with the firm, Kapurchand & Co., in which his income from the firm used to be credited and his withdrawals for personal and other expenses used to be debited. THE Samvat year 2012 of this account commenced with a credit balance of Rs. 2,07,119-6-10. THEn he made several withdrawals including payments for his own personal expenses. We are not concerned with these items of personal expenses, but on 16th December, 1955, he withdrew from this account a sum of Rs. 3,75,000. This amount was taken from the firm Kapurchand & Co, and deposited with Messrs. Kapurchand Ltd.,. forthwith on the same day in the name of his minor son, Narendra, to whom he admittedly gifted the amount.

(3.) NOW we are concerned in the present case with the assessment year 1959-60, for which the previous accounting year was Samvat year 2014, and in that year the position as regards the interest paid by the assessee and earned by him was as follows. As we have said, in the year of account he paid interest of Rs. 26,197 to the firm, Kapurchand & Co. As against that, from the amount of Rs. 3,75,000, which he had deposited with Kapurchand Ltd., he earned an interest of Rs. 25,375. For the assessment year 1959-60, the assessee showed in his return this amount of interest as an amount on which he was liable to be assessed under section 16 (3) along with his other income computed at Rs. 1,71,094, but the assessee claimed that the interest which he had paid in the year of account to the firm, Kapurchand & Co., should be allowed to him as a deduction, because it was the interest charged on his account by the firm.