Law:

Section:

Section 19 of the Income-tax Act, 1961 - Interest on securities - Deduction - Assessment years 1957-58 to 1965-66 - Assessee co-operative society invested provident fund of its employees in Government securities - Interest earned by investment of said provident fund was in turn credited in individual account of employees proportionately - Whether there was no relationship of lender and borrower between assessee society and its employees and, therefore, it could not be said that moneys of said provident fund constituted borrowed money within meaning of section 19(ii) - Held, yes - Whether, therefore, assessee's claim of deduction from its interest income on securities of amount of interest payable by it to its employees on account of said provident fund, could not be allowed - Held, yes Words and phrases : Phrase 'money borrowed' as occurring in section 19 of the Income-tax, Act 1961. FACTS The assessee co-operative society invested the funds of the provident fund accounts of its employees in Government securities and earned interest income by this investment. It claimed deduction from its 'income from interest' of the amount of interest payable by it to its employees on the balance of their provident fund accounts. The ITO found that the case was not covered by section 19(ii) because it was not a case of money borrowed from any one and, therefore, he dismissed the claim of the assessee. The AAC held that the provident fund amount was invested by the assessee in Government securities and it paid interest to its employees on the amount deducted from their salaries and, therefore, it was entitled to claim deduction. The Tribunal held that the assessee could be said to have borrowed moneys for the purpose of making investment in the Government securities within the meaning of section 19(ii) and, therefore, upheld the order of the AAC allowing the assessee's claim of deduction. On reference : HELD In accordance with the bye-laws of the assessee-co-operative society its employees had to make some contributions towards provident fund. The co-operative society had to make investments in accordance with the resolution passed by the executive committee of the…

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