1. In this reference, the following questions are referred to us by the Income-tax Appellate Tribunal, Bombay, Bench 'D' :
2. Assessment year 1968-69 :
'1. Whether, on the facts and in the circumstances of the case, the interest of Rs. 5,833 paid to Shri K.J.Somaiya is allowable against the dividend income under section 57(iii) of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to the allowance of bad debt of Rs. 94,402 or any part thereof ?
3. Whether, on the facts and in the circumstances of the case, the assessee is entitled to the allowance of Rs. 3,801 against business income ?'
3. Assessment year 1969-70 :
'1. Whether, on the facts and in the circumstances of the case, the interest of Rs. 35,000 paid to Shri K.J.Somaiya is allowable against the dividend income under section 57(iii) of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to the allowance of bad debt of Rs. 2,200 or any part thereof ?'
3. We are concerned with two assessment years 1968-69 and 1969-70. Questions Nos. 1 and 2 each of the assessment years are the same as respective questions in the other year.
4. We may briefly deal with the factual background . The assessee is a private limited company and was acting as managing agents of Godavari Sugar Mills Ltd. during the relevant years. It also derived income from certain investments. It also received interest on the advances made by it. On March 30, 1967, the assessee purchased from Mr. K. J. Somaiya 2,500 shares of Godavari Sugar Mills Ltd. for the sum of Rs. 3,50,000. The assessee did not have funds immediately available for paying the full consideration. It was, therefore, agreed that the purchaser should pay the price in installment s carrying interest at 10%. Immediately on acquisition, and it is agreed that the time interval was not more than a month, the shares were donated to a charitable trust known as K.J.Somaiya Trust. This was some time in April, 1967, although the exact date of donation is not on the record.
5. Interest of Rs. 5,833 was paid by the assessee to the said Mr. K. J. Somaiya for the assessment year 1968-69 and the said payment is the basis of question No. 1 for the said assessment year. Similarly, for the next assessment year, that is, 1969-70, the assessee paid interest of Rs. 35,000 also to the said Mr.K.J.Somaiya. All the three authorities below, namely, the ITO, the AAC as well as the Tribunal, have rejected the claim of the assessee for being allowed deduction of this interest. This was on the basis that the interest was not paid for acquiring any income earning asset but for acquiring an asset which was meant to be immediately donated to a charity. That the assessee had this intention can be gathered from the circumstances and particularly bearing in mind the very short time interval between the acquisition of the assets and its donation to the charitable trust.
6. This is precisely the basis on which the Tribunal disallowed the claim of the assessee. If we peruse the provision of s. 57 of the I.T. Act, 1961, we find that the view of the Tribunal is borne out by the phraseology employed and, in our opinion, there is little that can be urged against either the approach or the ultimate conclusion of the tribunal in respect of the interest paid. The question No. 1 for the two assessment years which pertains to the payment of interest will have to be answered in favour of the Revenue.
7. The assessee had claimed certain amounts on the basis that they represented bad debts written off in the respective assessment years. For the assessment year 1968-69, the claim came to Rs. 94,402 and for the assessment year 1969-70 to Rs. 2,200. The details of eleven parties whose debts were claimed as written off for the first year are furnished, but no such details were furnished for the second year. It was contended by the assessee that it had earned substantial interest for the two assessment years and that all this would indicate that the assessee was carrying on money-lending business. The Tribunal had in its appellate judgment fully considered various submissions made on behalf of the assessee, both factual and legal, and ultimately came to the conclusion that the advances not be shown to be made in the course of any money-lending business. Indeed, the Tribunal refused to concede that the assessee was carrying on any such business. According to the Tribunal, it may be that the assessee had earned some interest from surplus funds given as advances or loans to certain parties, but this by itself would not establish the indicium of trade. The Tribunal had sought various details from the assessee. The Tribunal pointed out that the assessee failed to give information which had been sought for. This is set down by the Tribunal in the following passage :
'If the assessee had conducted money-lending business, it could have certainly informed us as to what was the total capital in the said business, what was the extent of loans taken from outside parties, what was the total interest paid by the assessee, whether it owned a money-lending licence or whether it advanced funds only to traders, what was the extent of rolling of the circulating capital and such other relevant factors. No such evidence has been produced before us. The only material before us is that the assessee invested considerable amounts in purchase of shares and the interest paid on these advances was claimed against dividend income, of course after debiting the interest received from surplus funds advanced to a few parties. On the basis of the material, it is not possible for us to come to the conclusion that the assessee was doing money-lending business.'
8. Once the aforesaid portion of the appellate judgment of the Tribunal is perused, we must come to the conclusion that this is a finding given by the Tribunal which is predominantly based on the perusal of the factual material made available to it. It cannot be said that the conclusion is perverse or improper. If that be so, the answer to be given to question No. 2 for both the years will also be against the assessee.
9. This brings us to a consideration of question No. 3 for the assessment year 1968-69. It would appear that the assessee made a claim for Rs. 3,801. Of this amount, a sum of Rs. 2,427 was paid directly to the income-tax Department by way of interest for delayed payment of income-tax. The balance amount which would come to Rs. 1,374 seems to have been paid on funds borrowed for paying installment of advance tax. As regards the sum of Rs. 2,427, Mr. Dastur has very fairly not pressed the claim of the assessee for being allowed the said amount as a deduction. On the balance amount which would come to Rs. 1,374, the assessee appears to be on a firmer ground. Today tax law specifically allows such a deduction. Even otherwise, on the facts being found as they are, we are of the opinion that this may be allowed to the assessee as deduction. Thus, as far as question No. 3 for the assessment year 1968-69 is concerned, the assessee would be entitled to succeed in respect of an amount of Rs. 1,374.
10. Accordingly, we propose to answer the question as under :
11. Assessment year 1968-69 :
13. Question No. 1 : In the negative and in favour of the Revenue.
14. Question No. 2 : In the negative and in favour of the Revenue.
15. Question No. 3 : The assessee was entitled to allowance of Rs 1,374 only against its business income.
16. Assessment year 1969-70 :
17. Question No. 1 : In the negative and in favour of the Revenue.
18. Question No. 2 : In the negative and in favour of the Revenue.
19. The assessee has substantially and must pay the costs of the reference to the Commissioner. Order according.