1985 PLP 594 (PTD)

MOMA. J.‑At the instance of the assessee, the following two questions are. referred :‑ (1) Whether on the facts and in the circumstances of the case, the claim of the assessee in respect of interest amounting to Rs. 7,517 is allowable under section 36 (1) (iii), Income‑tax Act, 1961 ? (2) Whether on the facts and in the circumstances of the case, the payment of Rs. 1,000 as Municipal taxeis an allowab deduction for the assessment year 1962‑63 ? The assessee is a registered partnership firm with three partners . Shri S.L. Rathi, Shri S.Y. Solao and Messrs Saroj Screens Private Limited, Amravati. For the assessment year 1962‑63 relevant to the accounting period ending on 31st July, 1961, the assessee claimed allowance for interest arnounting to Rs. 7,517 on horrowed capital under section 36 (t) (iii) of the Income‑tax Act, 1961. The I.‑T. O. found that the debit balance of Shri Rathi amounted to Rs. 97,

399. Since interest on this sum at Rs. 9 per cent per annum exceeded the amount of interest for which deduction was claimed, it was disallowed. The assessee also claimed allowance for Rs. 1,200 paid by it as a Municipal tax in respect of its Branch Messrs Rajkamal Talkies. The taxes paid were in respect of the years 1954‑55 to 1958‑

59. Undei the agreement, the assessee was liable to pay Municipal taxes maximum at the rate of Rs. 200 per year and the liability accrued every year. As the account‑books of the assesses were on mercantile basis and not on cash basis, the I.‑T. O. allowed the claim of allowance to the tune of Rs. 200 only and disallowed the claim in respect of the earlier period. The A. A. C. and the Tribunal upheld this order. 2, Shri Deo, the learned counsel appearing for the assessed placing reliance on the statement Annexure‑A filed for the first time before the Tribunal explaining the details of the manner in which the amount borrowed was actually spent contended that the borrowed amounts were actually spent for the business as detailed in the said and under the circumstances, the ratio laid down in the I. T. Bombay v. Bombay Samachar Limited Bombay (1969) 74 I T R 723 (Bom.). We find it difficult to accept this submission. borrowings specially by the partner Shri Rathi right from i have been quoted in extenso in the statement of case as well as in the order of the Tribunal speak volumes. In the Bombay Samachar Limited Bombay's case (cited supra) the admitted position was that the capital borrowed by the assesses from outsiders was used by the assessee for the purposes of the business and that no part of the borrowed capital had been utilised for the purposes of advancing loans to any component of the Company. Moreover, the statement Annexure A was not filed before the L‑T. O. It is not, possible. to ascertain facts mentioned in Annexure A in isolation without examining the other entries and, therefore, we find it difficult to base our judgment on the same. It is pertinent to notice that for the assessment years 1958‑59 to 1960‑61 the amount of interest paid to Shri Rathi was disallowed and the assessee accepted this disallowance without making any grievance. The Tribunal has also held this circumstance against the assessee and in our judgment rightly. Under these circumstances, the view taken by the I.‑T. O. and ultimately confirmed by the Tribunal is a possible view of the matter on evidence and we find it difficult to find any legal flaw in the same. Consequently, Question 1 is' answered in the negative and in favour of the Revenue.

3. Admitted position is that the accounts of the assessee are on mercantile basis. The liability of taxes to the extent ~of Rs. 200 accrued every year. Under these circumstances ; the fact .of actual consolidated payment for five years in the relevant assessment year does not entitle the assessee to claim the entire deduction in one year. Consequently, question 2 is also answered in the negative and in favour of ~ the Revenue. The assessee to bear the costs of the Reference. M. B. A. Reference answered in the negative