COMMISSIONER OF INCOME-TAX Vs. OM PARKASH BEHL

JUDGEMENT

(1.) THIS judgment will dispose of Income-tax References Nos. 73 to 75 of 1974 and No. 62 of 1975. Since the facts are common and a common question of law is involved in these references made under Section 256 (1) of the I. T. Act, 1961 (hereinafter referred to as "the Act"), the same are being disposed of by this common judgment.

(2.) THE assessee, Shri Om Prakash Bahi, is a partner in the firm, M/s. Shiv Lal Kanaiya Lal, Delhi. He also carried on his personal business in the name of M/s. Ideal Woollen and Silk Mills, Amritsar. His personal account in the books of the firm, M/s. Shiv Lal Kanaiya Lal, as on 1st April, 1966, showed a debit balance of Rs. 1,16,852. According to the assessee, the other partners of the firm insisted that the assessee should clear the debt and make his contribution to the firm. M/s. Yog Textile Mills, Amritsar, was a sister concern of M/s. Shiv Lal Kanaiya Lal, being a proprietary concern of the assessee's brother and this concern had a credit balance with M/s. Shiv Lal Kanaiya Lal. The assessee got an amount of Rs. 1,13,500 transferred from the account of M/s. Yog Textile Mills to his personal account in the books of M/s. Shiv Lal Ranaiya Lal in order to clear a major portion of the debt due to the above firm. According to the assessee, this represented an arrangement made by the assessee with his brother for a loan on interest and M/s. Yog Textile Mills charged the assessee interest of Rs. 17,537 for the period from 1st April, 1966, to 31st March,, 1967, relevant to the assessment year 1967-68, Rs. 15,724 for the period from 1st April, 1967, to 31st March, 1968, relevant to the assessment year 1968-69, and Rs. 18,091 for the period from 1st April, 1968, to 31st March, 1969, relevant to the assessment year 1969-70, and Rs. 13,337 for the period from 1st April, 1969, to 31st March, 1970, relevant to the assessment year 1970-71. This claim was disallowed by the ITO on the ground that the amount on which the interest had been claimed was not obtained by the assessee for the purposes of his business but was only obtained by means of book adjustments from M/s. Yog Textile Mills in order to make the payment to M/s. Shiv Lal Kanaiya Lal, Delhi. It was also held by the ITO that as the withdrawals from M/s. Shiv Lal Kanaiya Lal were made by the assessee for meeting his personal expenses and payment of income-tax, etc. , it could not be said that the loan obtained from M/s. Yog Textile Mills was utilised by the assessee for business purposes. The ITO, therefore, disallowed the above claims.

(3.) IN the appeal filed by the assessee, the AAC upheld the disallowance for all the four years, firstly, on the ground that the; immediate cause for the liability taken over from M/s. Yog Textile Mills was to reimburse the firm in respect of the personal borrowings and since the loan had not been taken for investment of capital in the firm, but had been taken for the repayment of a personal debt, the expenses claimed were not covered by the provisions of Section 67 (3) of the Act, and, hence, was inadmissible against the share income of the assessee from the firm, M/s. Shiv Lal Kanaiya Lal. It was also held by the AAC that it was not allowable against the personal business of the assessee in the name of M/s. Ideal Woollen and Silk Mills because the loan did not represent capital borrowed for the purposes of his personal business as the amount had not been introduced in the personal business and hence the provisions of Section 36 (1) (iii) of the Act were not applicable in the facts of the present cases.