Law:

Section:

Section 36(1)(iii), read with section 183 of the Income-tax Act, 1961 [Corresponding to section 10(2)(iii), read with section 23(5)(b) of the Indian Income-tax Act, 1922] - Interest on borrowed capital - Assessment year 1952-53 - Whether interest paid by assessee on moneys borrowed from outsiders for making advances to unregistered firm, in which he was a partner was an allowable deduction under section 10(2)(iii) of 1922 Act in computing his individual income for purposes of assessment under section 23(5)(b) of 1922 Act - Held, yes Section 256 of the Income-tax Act, 1961 [Corresponding to section 66 of the Indian Income-tax Act, 1922] - High Court - Reference to - Assessment year 1953-54 - Whether if consideration of a point of law was involved in a question raised by Tribunal and if that point of law was neither taken before Tribunal nor considered by it, then on reference High Court is not precluded from considering point of law in question which was in issue before Tribunal and referred to High Court for decision under section 66(1) of 1922 Act - Held, yes FACTS The assessee was a partner in two unregistered firm. During the accounting year relevant to the assessment year 1952-53, the assessee borrowed money from some persons and paid interest on these borrowings for the purpose of the two firms. In his individual assessment the assessee claimed to deduct this amount of interest from his assessable income. The assessee's claim was rejected by the ITO on the ground that the payments of interest pertained to the business of the firms and not the business of the assessee. The AAC allowed the claim following the decision of the Tribunal in the assessment case relating to the assessment to income-tax for the preceding year. On appeal by the revenue, the Tribunal following the decision in the case of CIT v. Sorabji Framji Kerawala [1960] 39 ITR 99, allowed the appeal filed by the department. On reference : HELD The Tribunal was clearly in error in thinking that the deduction claimed by the assessee in the proceedings for the year 1953-54 must be disallowed in the same way as was done in Sorabji's case (supra). It failed to note that whereas in the assessment year…

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