BANCHHANIDHI ONKARMAL Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) IN all the four cases, this Court under Section 66 (2) of the Income-tax Act, 1922 required the Appellate Tribunal to state the case and to refer the following question for the opinion of the Court:

(2.) THE assessment years involved in these cases are 1949-50, 1950-51, 1951-52, and 1952-53, the corresponding previous years being Diwali years 2005, 2006, 2007 and 2008.

(3.) FOR all these four years the assessee was a Hindu undivided family with onkarmal Poddar as the Karta. The assessee carried on various businesses in cloth, yarn etc. and derived income from other sources also. Mani Bai Poddar is the wife of Onkarmal Poddar. On the occasion of her marriage with Onkarmal, she received a sum of Rs. 20,000/- from her father-in-law and Rs. 2,500/- from her mother-in-law. The total sum of Rs. 22,500/- she kept as initial deposit in the books of account of the assessee. The assessea claimed payment of interest at the rate of 9 per cent on the amount of credit balance standing in the name of Mani. In the assessment year 1930-31, the Commissioner directed that the interest credited to this amount should be allowed as deduction. In accordance with the direction of the Commissioner, the interest used to be credited to the account of Bai Mani at the rate of 9 per cent. No amount having been withdrawn by the lady, by the assessment year 1950-51 the credit balance swelled to Rs. 1,62,464/ -. Long after the decision of the Commissioner for the assessment year 1930-31, it was found that the assessee was borrowing from other persons at rates 6 to 7 per cent interest and was lending out money at the rate of 6 per cent. In course of the assessment year 1946-1947, the department wanted to go back on their previous order and urged that the money did not belong to Bai Mani, but to the assessee Hindu undivided family and on that footing payment of interest was disallowed and the matter came up before the Tribunal. There was a difference of opinion between the two members. One of the members agreed with the findings of the department while the other felt that at that distance of time the fact of borrowing from the lady could not be questioned. The matter was referred to the third member who found that the money in question was the Stridhan property of Bai Mani, but in view of the fact that the money was kept in the nature of a fixed deposit by a member of the family, it would be reasonable to allow interest at the rate of 6 per cent only. Against this decision, the assessee came up before the High Court in O. J. C. 32 of 1952 questioning the propriety of the 3rd member to vary the rate of interest from 9 per cent to 6 per cent when no such question was referred to him. The High court by order dated 10-9-1954 held that the third member was called upon merely to decide whether the amount of interest should be allowed as revenue deduction or not and it was not open to him to vary the amount of interest. Accordingly in that year the assessee's claim for deduction was allowed without any adjudication as to the quantum of interest allowable as a commercial transaction,