COMMISSIONER OF INCOME TAX Vs. DOCTOR AND CO

JUDGEMENT

(1.) THE only question referred to this court in this case at the instance of the Department is :

(2.) THE assessee is a firm and the assessment year involved is 1971 -72. It is common ground that the assessee had borrowed moneys from different persons in the previous years relevant to the assessment years 1967 -68 and 1968 -69 on interest and that a part of the money so borrowed was advanced to its sister concerns free of interest. The sister concerns are All Steel and Asian Industries, in which the partners of the assessee -firm are also partners. It is also common ground that the interest to the extent it was payable on the moneys borrowed and diverted to sister concerns free of interest was disallowed in those years.

(3.) BESIDES reiterating its submissions before the Income -tax Officer, it was urged before the Appellate Assistant Commissioner that the assessee had the benefit of not only interest -free capital but also of amounts standing to the credit of various sundry creditors to whom no interest was paid and that if those two amounts were taken into account, the total of amounts advanced to the sister concerns would be found covered. The Appellate Assistant Commissioner accepted that the assessee could have advanced interest -free loans to its sister concerns out of its capital. However, the amounts standing to the credit of the various sundry creditors representing the value of the goods purchased would not be available for the purpose of advancing money to the sister concerns as the assessee must have likewise sold goods on credit free of interest. Accordingly, he computed the amount available to the assessee out of its capital on an average basis and the loans advanced to the sister concerns on interest at the rate of 4 per cent. The computation is given in paragraph 11 of his order, On such computation, he reduced the disallowance of interest to Rs. 18,722 from Rs. 27,771 made by the Income -tax Officer.