Satish Chandra J.
1. The assessee is a co-operative society. Its funds have been invested mainly in Government securities. Its funds include the funds of the provident fund accounts of its employees. A portion of this provident fund was invested by the assessee in Government securities. The assessee earned interest income by this investment. For the assessment years 1957-58 to 1960-61, 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. This claim was accepted by the Income-tax Officer.
2. For the assessment years 1961-62 to 1965-66, the same claim was, however, repelled by the Income-tax Officer. He held that the assessee-co-operative society could not be said to have borrowed any money so as to claim deduction under Section 19(ii) of the Income-tax Act, 1961.
3. On this view, the Income-tax Officer reopened the assessments for the previous years 1957-58 to 1960-61 and, after hearing the assessee, disallowed the claim for interest for those years as well.
4. The assessee went up in appeal. The Appellate Assistant Commissioner upheld the assessee's claim. He found that the transaction was in substance that of loan. The money was repayable by the assessee-co-operative society with interest to its employees. He remanded the case to the Income-tax Officer for fresh assessment after looking into the assessee's claim for deduction under this head. After remand, the Income-tax Officer again found that the case was not covered by Section 19(ii) of the Act because it was not a case of money borrowed from any one. He dismissed the claim of the assessee under this head once again. When the matter came up before the Appellate Assistant Commissioner, again he held that the provident fund amount was invested by the assessee in Government securities. The assessee paid interest to its employees on the amount deducted from their salaries and, therefore, it was entitled to claim deduction. Aggrieved, the Income-tax Officer went up in appeal to the Tribunal for all the assessment years. The Tribunal held that, in the circumstances, 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) of the Act. The appeals were dismissed.
5. At the instance of the department, 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 legally correct in upholding the Appellate Assistant Commissioner's order allowing the assessee' claim of deduction from its income from interest on securities of sums being interest paid or payable by it to its employees on account of provident fund amounts standing to the credit of their provident fund accounts in the books of the assessee for the assessment years 1957-58 to 1965-66?'
6. It appears that in accordance with the bye-laws of the assessee-co-operative society its employees have to make some contributions towards provident fund. The co-operative society has to make investments in accordance with the resolution passed by the executive committee of the co-operative society. The assessee is obliged to keep funds invested in Government securities. From the course of conduct actually adopted by the society it appears that the interest earned by the investment of the provident fund amount in Government securities is, in its turn, credited by the assessee in the individual account of the employees' provident fund proportionately. In other words, the assessee-society did not retain any part of the interest so earned for itself.
7. In this factual background it is difficult to see how the assessee can claim to have 'borrowed money' for purposes of claiming deduction within the meaning of Section 19(ii) of the Act. 'Borrowed money' is a phrase well known to the commercial world. The money must belong to the person who lends the same to a borrower, on an understanding as to the time when it is to be returned and on payment of interest. Here the assessee which had the custody of the provident fund which belonged to its employees, invested it in accordance with the resolution of its executive committee in Government securities. The entire interest earned by the society was credited in the accounts of the individual employees. In fact, the assessee acted only as an investing agent. There was no relationship of lender and borrower between the assessee-society and its employees. It is, therefore, difficult to uphold the conclusion of the Tribunal that the moneys of the provident fund invested in Government securities constituted 'borrowed money' within the meaning of Section 19(ii) of the Act.
8. In Inland Revenue Commissioners v. Rowntree & Co. Ltd.  1 All ER 482 (CA), it was held that the words 'borrowed money' require the existence of a borrower and a lender and that there must be a real borrow ing in the legal sense of the word. It was also observed that borrowing as well as discounting a bill are distinct legal transactions although they pro duce the same result. 'Borrowing' is a familiar word and 'borrowingmoney' is a familiar phrase.
9. In our opinion, the phrase ' money borrowed' used in Section 19(ii) has been used in its ordinary sense known to the commercial world. There is, in oar opinion, no justification for expanding its meaning to include transactions which are not intrinsically of that nature.
10. We, therefore, answer the question referred to us in the negative, infavour of the department and against the assessee. The Commissionerwould be entitled to costs which are assessed at Rs. 200.