1. The question in respect of which the rule has been obtained by the Commissioner of Income-tax in this matter runs thus :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest paid on borrowings which were utilised at least partly for the payment of income-tax liabilities of the firm and partners could be said to be wholly and exclusively laid out for the purposes of business and accordingly allowable as deduction ?'
2. The assessee, a registered firm, comprising of three partners carried on business in different commodities from Bombay 'Pedhi' and from various branches in India and the question relates to the disallowance of a part of interest on borrowed monies in the relevant assessment years 1958-59 to 1965-66. The Income-tax Officer disallowed Rs. 64,075, Rs. 88,469, Rs. 55,199, Rs. 48,705, Rs. 63,717, Rs. 1,23,085, Rs. 1,21,988 and Rs. 1,05,984, out of the interest amount on the ground that the borrowings of the firm to the extent were not for the business purposes but were partly for meeting certain income-tax liabilities of the firm and the partners during the aforesaid assessment years, respectively. This action of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner for assessment years 1958-59 to 1962-63 and 1965-66 but the Appellate Assistant Commissioner deleted the additions for assessment years 1963-64 and 1964-65. Appeals were preferred by the assessee to the Tribunal and in respect of such parts of the orders that had gone against the revenue, the revenue also preferred appeals against the Appellate Assistant Commissioner's orders, namely, against the orders for the assessment years 1963-64 and 1964-65, respectively. It appears that the principal point that was urged on behalf of the revenue before the Tribunal was that in the earlier years, namely, for the assessment years 1951-52 and 1952-53, a similar claim for deduction of interest had been disallowed, and the position had not changed during the years under consideration. On the other hand, on behalf of the assessee, it was contended that when the question for the earlier years had been decided by the Tribunal, the Tribunal had not the advantage of the decision of this court in the case of Commissioner of Income-tax v. Bombay Samachar P. Ltd. : 74ITR723(Bom) and that since the case of the assessee was fully covered by the ratio of that decision, the Tribunal should not simply follow the earlier decision but should decide the question afresh in view of the changed circumstances. There points were urged on behalf of the assessee in support of their claim for the deduction of the interest, first, that there were no fresh borrowers during the years under reference for paying any taxes and the profits of the relevant years more than covered the additional taxes; secondly, that the business being that of banking, there were no borrowers as such but only deposits were made by the clients; and, thirdly, that had it not been for the unreasonable delay in recovering the taxes wrongly, the assessee would not have been required to pay huge interest. It was pointed out that during the years 1946-47 to 1951-52, the assessee-firm was required by the income-tax authority to pay large sums by way of income-tax and excess profits tax not against specific demands but on lump sum basis as a sort of co-operation to meet with their budget requirements and it was further pointed out that actually after considerable delay an amount to the true of Rs. 30,00,000 had been refunded by the revenue to them. On a consideration of the decision of this court in Commissioner of Income-tax v. Bombay Samachar P. Ltd. : 74ITR723(Bom) , the Tribunal came to the conclusion that in view of the special circumstances in the case the earlier decision of the Tribunal for the assessment year 1952-53 could not be applied to the facts of the case for the years under reference and that the ratio of the decision of this court in Bombay Samachar Pvt. Ltd. 's case reported in : 74ITR723(Bom) was that only three conditions were required to be satisfied in order to enable the assessee to claim a deduction in respect of the borrowed capital under section 10 (2) (iii); firstly, that the money must be borrowed; secondly, it must have been borrowed for the purposes of the business and, thirdly, the assessee must have paid the interest on the same amount and claimed it as a deduction and that it was not the requirement of the provisions that the assessee must further show that the borrowing of the capital was necessary for the business. This court also took the view that the fact that the assessee had ample resources at his disposal and need not have borrowed, was not a relevant matter for consideration and, further, the view that if the assessee had collected the outstanding which were due from others it will have been able to reduce part of the interest on its own dealings was not correct. The Tribunal ultimately decided the point in favour of the assessee by allowing the deductions claimed principally on two grounds. In the first place, having regard to the ratio of this court's decision in Commissioner of Income-tax v. Bombay Samachar P. Ltd. : 74ITR723(Bom) and having regard to the fact that the business of the assessee was that of banking and there were no borrowers as such but only acceptance of deposits by the assessee from their clients. All the three conditions mentioned by this court under the aforesaid decision as per the provisions of section 10 (2) (iii) were completely satisfied and that the borrowings or acceptance of the deposits having been initially made for its business purposes, the use to which part of such dealings were put later on was not material and, therefore, the deductions in respect of amounts of interest paid were allowable. Secondly, the Tribunal took the view that it was not clear under what circumstances these huge demands came to be made, whether voluntarily or under compulsion, but the fact remained that much of it was refunded. The capital of the partners was evidently insufficient to pay the huge amounts, and unless these were paid, the business itself could have come to a standstill and, in that sense, the borrowers were necessary to keep the business going, and the expenditure by way of interest can be said to be wholly and exclusively necessary for the purposes of business so as to make it allowable under section 10 (2) (xv) of the Act. It observed that this was not the case of any ordinary borrowal for the purposes of paying tax.
3. It is not necessary for us to decide whether both the grounds on which the point had been decided by the Tribunal in favour of the assessee could be regarded as valid grounds or not, and even if the decision of the Tribunal is capable of being sustained on one out of the two grounds the conclusion of the Tribunal will have to be upheld.
4. In our view, the Tribunal in paragraph 11 of its order has categorically referred to the special circumstance which obtained in the case and it has recorded its finding in that behalf in these terms :
'It is an admitted position that the assessee-firm does business not only in textiles but also in banking. In banking business it is, therefore, bound to accept deposits from depositors in the course of banking business. As to how to utilise these deposits profitably is a subsequent issue. The deposits were, therefore, received in the course of its business. It is now well settled law that once the borrowings were made in the course of business, interest has to be allowed on such borrowings till they are repaid.'
5. The Tribunal has then proceeded to observe that the ratio of this court's decision in Commissioner of Income-tax v. Bombay Samachar P. Ltd. : 74ITR723(Bom) was clearly applicable to this case, inasmuch as all the three conditions that are required to be satisfied for allowing deduction under section 10 (2) (iii) were satisfied and that the aspect whether at a subsequent stage the deposit had been utilised for payment of a huge sum that was demanded from they by the income-tax department, was really not material.
6. In our view, this ground on the basis of which the point has been answered by the Tribunal in favour of the assessee is clearly valid and sustainable. Mr. Joshi, for the revenue, attempted to argue before us that the borrowings which were the subject-matter under consideration for the relevant years before the Tribunal were the very borrowings which were the subject-matter of the appeals before the Tribunal for the earlier year 1953 and since in the earlier years a similar claim for deduction for interest was disallowed, the Tribunal could not have taken a different view and permitted the deduction claim in the years under consideration. It is not possible to accept this submission of Mr. Joshi for the simple reason that in the earlier years it was not clearly or categorically brought to the Tribunal's notice that the assessee was also carrying on banking business and was required to accept business from their clients. The Tribunal has in this behalf referred to the special circumstances which obtained in the case to which its attention was drawn when the question was argued before it for the relevant years under consideration and in that behalf the Tribunal has recorded its finding of fact as indicated above. Secondly, Mr. Joshi urged that the Tribunal could be said to have indulged in some sort of conjecture when it stated that the assessee was forced to accept the deposits from its clients. But it must be pointed out that if the department or the revenue wanted to challenge the finding of fact recorded by the Tribunal in this behalf, a proper question in that behalf would have been raised by that department. But no such question challenging the finding of fact as being based on no evidence at all on the record has anywhere been indicated even in the petition filed for obtaining rule. In fact, the question as framed in respect of which the rule has been obtained lays considerable emphasis only on the aspect of the user of the deposits or borrowed monies partly for payment of income-tax liability for the firm and partners. In other words, even the revenue has sought to challenge the Tribunal's conclusion only on the basis that the subsequent user of the deposits should be regarded as relevant and should make a difference on the question as to whether the deduction claimed should be allowed or not as on this aspect of the matter as we have already decided (sic). The Tribunal has rightly appreciated the ratio of the case reported in Commissioner of Income-tax v. Bombay Samachar P. Ltd. : 74ITR723(Bom) .
7. Having regard to the above discussion, we feel that the rule deserves to be discharged. Accordingly, the same is discharged with costs.