Commissioner of Income Tax vs Parekh Kothi Ltd.

Satish Chandra, C.J.—For the assessment years 1968-69 and 1969-70, the Tribunal has referred the following question of law for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in directing the income tax: Officer to allow u/s 24(1)(vi) of the Income Tax Act Act, 1961, the deduction of Rs. 60,750 and Rs. 81,000 representing interest on unsecured debentures in the respective assessments for the assessment years i 968-69 and 1969-70 provided the property was initially purchased with loan capital ? "

For the assessment year 1968-69 only, the Tribunal has referred the following question of law for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing the sum of Rs. 10,838 representing municipal taxes within the meaning of Section 23(1) of the Income Tax Act, 1961, for the assessment year 1968-69 ? "

In respect of the first question, the position is that the assessee is a company. The company claimed a deduction of Rs. 60,750 and Rs. 81,000 on account of interest on unsecured debentures for the two assessment years. This claim was disallowed by the Income Tax Officer but was accepted by the Appellate Assistant Commissioner. The Commissioner held that the property was purchased out of borrowed capital. Before the Tribunal, certain fresh documents like the minutes of the promoters'' meeting and the minutes of the shareholders'' meeting were produced. The departmental representative objected to the admission of fresh evidence. The Tribunal felt that this material was relevant to the question involved in the matter. It sent back the matter to the Income Tax Officer for a specific finding as to whether the property was initially purchased with loan capital or with share capital. It directed that if the property was purchased with loan capital, the interest claimed should be allowed in the computation of income from property. From the statement of the case, as well as the order of the Tribunal, it is clear that the Tribunal did not itself record any finding on the question whether the property was initially purchased with borrowed capital or otherwise. It did not rely upon the fresh material produced before it. It noted the objection raised by the departmental representative. It thought that the matter should be gone into by the Income Tax Officer in all its aspects including the material sought to be adduced before the Tribunal. We are quite clear that if it is found that the property was initially purchased with borrowed capital, the Tribunal was justified in making the direction that the deduction of Rs. 60,750 and Rs. 81,000 representing interest on unsecured debentures for the two assessment years was liable to be allowed u/s 24(1)(vi) of the Income Tax Act. Therefore, we answer the first question in the affirmative and in favour of the assessee and against the Department.

With reference to the second question, the position is that by a judgment dated May 27, 1967, which was during the accounting period relevant to the assessment year 1968-69, the Small Causes Court, Calcutta, effected revision of municipal taxes retrospectively from the fourth quarter of 1962-63. As a result of this judgment, the assessee''s additional liability to pay municipal taxes retrospectively from the fourth quarter of 1962-63 became fixed at Rs. 10,838. It was clear that the liability to pay this amount accrued during the accounting period relevant to the assessment year 1968-69. It was hence rightly allowed as deduction.

The second question is accordingly answered in the affirmative and in favour of the assessee and against the Department.

There will be no order as to costs.

Mukul Gopal Mukherjee J.

I agree.