COMMISSIONER OF INCOME TAX Vs. SOBHAGMAL JORAWAR MAL

JUDGEMENT

(1.) THESE are five applications under Section 256(2) of the Income-tax Act, 1961, hereinafter referred to as the "Act", for the assessment years 1973-74, 1974-75, 1975-76, 1978-79 and 1979-80 which are numbered as 76, 77, 165, 312 and 313 of 1982 respectively, making a prayer that the High Court may require the Tribunal to refer the question of law arising out of its order dated August 29, 1980, for the decision of this court. Since the parties are the same and the question of law involved is also the same, these reference applications are being decided by a common order. In D. B. Income-tax Reference Application No. 76 of 1982 and 77 of 1982 the following question of law has been framed :

(2.) IN D. B. INcome-tax Reference Application No. 165 of 1982 the following question of law has been framed 3

(3.) LEARNED counsel for the Revenue vehemently argued that the interest paid to the minors cannot be allowed either under Section 36(1)(iii) or under Section 37 of the Act. Two partners of the firm, namely' Jorawar Mal and Sobhagmal, made gifts of various amounts to their near relations by book entries and the amounts said to have been gifted were debited to the accounts of the donors and credited on the same dates to the accounts of the donees. The firm credited interest to the accounts of the donees on the above amounts and claimed the same as a deduction in computation of its total income. There was no fresh borrowing by the assessee firm for the purpose of the business and the assessee has miserably failed to prove that these deposits are fresh borrowings for the purpose of the business and hence it is not deductible and allowable under Section 36 or 37 of the Act. He has placed reliance on Madhav Prasad Jatia v. CIT [1979] 118 ITR 200 (SC) and Bombay Steam Navigation Co. (1953) Pvt. Ltd. v. CIT[1965] 56 ITR 52 (SC) and, since the assessee has failed to prove that the amount was borrowed for the business of the assessee-firm or there were fresh borrowings, the amount of interest paid on the deposits of the minors by way of gift by the partners of the firm cannot be deducted under Sections 36(1) and 37 of the Act.