ARVIND KUMAR LOHIA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this reference under S. 256(1) of the IT Act, 1961 for the asst. yr. 1981-82 at the instance of the assessee the following question of law has been referred to this Court :

(2.) THE facts are that the assessee, an individual, is a partner in the firm M/s East India Transport Agency. The said firm changed its accounting year from Ram Navami to 30th June as a result of which there was no assessment of the firm for the asst. yr. 1981- 82. The assessee accordingly had no share income from the said firm and for the assessment year under consideration the assessee has not, therefore, shown any income from the firm. However, before the ITO the assessee claimed that interest to the tune of Rs. 29,195 paid by him on the capital borrowed for investment in the firm should be allowed to be set off against the income from speculation. The ITO was of the opinion that since there was no income of the firm this year there was no justification for allowance of interest paid by the assessee on the money borrowed for making capital investment in the firm. He accordingly disallowed the assessee's claim for deduction of the aforesaid amount of interest. During the relevant accounting year the assessee also had income from his speculation business which is a business distinct and separate from the business of the assessee as a partner of the aforesaid firm.

(3.) AGGRIEVED by the order of the AAC the Department came up in second appeal before the Tribunal. The Tribunal held that in order to justify a claim under S. 67(3) of the IT Act, 1961 there must be some share income from the firm in which the assessee is a partner. If a claim is negatived on the phraseology of S. 67(3) the assessee cannot fall back on S. 36(1)(iii) which is in the nature of a general provision relating to all businesses. In such a situation S. 36(1)(iii) will have no application and the claim for deduction cannot be allowed under the provision of this section. The Tribunal, therefore, set aside the order of the AAC.