MANNALAL RATANLAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under s. 66(1) of the Indian IT Act, 1922. The assessment year is 1952-53. The corresponding accounting year is 2007-8 Dewali. The assessee is a partner in the registered firm of M/s Sadhuram Tolaram. From this firm the assessee derived one-third of the income in each of the three heads, namely, property, business and other sources. In the year of account relevant to the said assessment year, the assessee borrowed a certain sum of money for the purpose of paying income-tax in respect of assessments for preceding years. The assessee paid a sum of Rs. 1,934 (Rupees one thousand and nine hundred and thirty-four) as interest on this borrowing.

(2.) THE ITO refused to allow deduction of this sum of interest from the total income of the assessee. Before the AAC the assessee contended that if he had not borrowed money, he would have been compelled to liquidate part of his income yielding assets, which would have resulted in the reduction of his assessable income. It was said that the borrowings was for the purpose of maintaining income-yielding assets intact. THE AAC held that there was no connection between the expenditure incurred and the income earned. He confirmed the disallowance by the ITO. On appeal to the Tribunal, the assessee contended that :

(3.) BOTH the AAC and the Tribunal have relied on the judgment of the Bombay High Court in Bai Bhuriben Lallubhai vs. CIT. (1956) 29 ITR 543 On these facts the following question has arisen :