J.V. Gupta, J.
1. The following question of law has been referred forthe opinion of this court:
'Whether, on the facts and in the circumstances of the case, the interest of Rs. 36,91,781 paid to the Northern Railway and the Punjab Government is in respect of the capital borrowed for purposes of the assessee's business within the meaning of Section 36(1)(iii) of the Income-tax Act, 1961 ?'
2. The assessee is the PEPSU Road Transport Corporation, Patiala, incorporated under the Road Transport Corporations Act, 1950 (hereinafter called 'the Act'), and is a company within the meaning of Section 2(17) of the I.T. Act. It carries on the business of plying passenger buses. The assessment year is 1965-66. Section 23 of the Act provides :
'Capital of the Corporation.--(1) The Central Government and the State Government may provide to a Corporation established by the State Government, in such proportion as may be agreed to by both the Governments, any capital that may be required by the Corporation for the purpose of carrying on the undertaking or for purpose connected therewith on such terms and conditions not inconsistent with the provisions of this Act, as the State Government may, with the previous approval of the Central Government, determine.
(2) Whether the capital of a Corporation is not provided under Subsection (1), the Corporation may raise, by the issue of shares, such capital as may be authorised in this behalf by the State Government.
(3) The authorised capital of the Corporation shall be divided into such number of shares as the State Government may determine; and the number of shares which shall be subscribed by the State Government, the Central Government and the other parties (including persons whose undertakings have been acquired by the Corporation) shall also be determined by the State Government in consultation with the Central Government.
(4) The allotment of shares to other parties mentioned in Subsection (3) shall be made by the Corporation in such manner as may be prescribed.
(5) The shares of the Corporation shall not be transferable except in accordance with the rules made under this Act.
(6) The Corporation may at any time, with the previous approval of the State Government, redeem the shares issued to the other parties under Sub-section (4) in such manner as may be prescribed.'
3. Section 26 of the Act, reads :
'26. Borrowing powers.--A Corporation may, with the previous approval of the State Government, borrow money in the open market or otherwise for the purpose of raising its working capital.'
4. Section 28(1) is in the following terms:
'28. Payment of interest and dividend.--(1) Where the capital of a Corporation is provided by the Central Government and the State Government under Sub-section (1) of Section 23, the Corporation shall pay interest on such capital at such rate as may, from time to time, be fixed by the State Government in consultation with the Central Government and such interest shall be deemed to be a part of the expenditure of the Corporation.'
5. In view of these provisions, the capital was provided by the Union of India through the Northern Railway, and the Punjab Govt. The assessee paid interest to both the Northern Railway as well as the Punjab Govt. as claimed by them. The only point raised before the Income-tax Appellate Tribunal was:
' Whether the assessee was entitled to the allowance of interest of Rs. 36,91,781?'
6. The first question which the Tribunal considered was whether the said amount of Rs. 36,91,781 was an admissible deduction under Section 96(1)(iii) of the I.T. Act. On this question, the Tribunal held that the assessee's claim for interest was not admissible under Section 96(1)(iii) and observed:
'Under this provision, the amount of interest paid in respect of capital borrowed for the purposes of the business only is admissible. Areading of the Road Transport Corporations Act, 1950, leaves no doubt that the interest in question was payable in respect of the capital provided to the assessee for the purpose of the assessee's business. The said capital, however, cannot be said to have been borrowed by the assessee. Firstly, it may be noted that the provision regarding raising of capital by borrowal is contained in Sub-sections (1) and (2) of Section 26 of the said 1950 Act. Secondly, there was no agreement of loan executed in the instant case and the assessee being a body corporate could not be a party to a verbal agreement of loan. Similarly, the Government of Punjab or the Central Government could not be a party to the verbal agreement of loan in the face of the provisions of Article 299(1) of the Constitution of India. Thirdly, the concept of borrowal necessarily implies the liability of the debtor to repay the amount of loan. The said 1950 Act, on the basis of the provisions on which the liability on the part of the assessee to pay interest arose, contains no provision for repayment of the capital in question as such. The nearest provision in this regard is contained in Section 30 of the said Act with a marginal heading ' Disposal of net profit'. From that section also it cannot be inferred that any repayment of the loan as such by the assessee either to the State Government or to the Central Government, who both had provided the capital in question, was contemplated. We, therefore, conclude that the interest paid in the instant case was not in respect of the capital, which can be said to have been borrowed as such. The assessee is thus not entitled to the deduction under Section 36(1)(iii), Income-tax Act, 1961.'
7. The Tribunal thereafter considered whether the interest of Rs. 36,91,781 can be said to be expenditure laid out or expended wholly or exclusively for the purpose of the business as provided under Section 97 of the I.T. Act. As no finding had been recorded by the lower authorities on this point, the assessment order was set aside with a direction that a clear finding should be recorded whether the expenditure of Rs. 36,91,781 was laid out or expended wholly and exclusively for the purposes of the assessee's business. However, we are not concerned with that aspect of the matter in this reference.
8. The learned counsel for the assessee contended that the payment of interest on the capital provided by the Central Govt. and the State Govt. is an admissible deduction under Section 96(1)(iii) of the Income-tax Act, which reads:
' the amount of the interest paid in respect of capital borrowed for the purposes of the business of profession.
Explanation.--Recurring subscriptions paid periodically by shareholders or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause. '
9. Thus, the sole question for determination is : 'Whether the capital provided under Section 23 of the Act, by the Central Govt. as well as the State Govt, is the capital borrowed for the purposes of the business or profession?' The main argument of the learned counsel is that since the interest is payable thereon, as provided under Section 28 of the Act, the assessee is entitled to claim this deduction under Section 96(1)(iii) of the I.T. Act.
10. The word 'borrow' has not been defined in the statute and, therefore, its dictionary meaning has to be looked up. The meaning of the word 'borrow' as given in the Shorter Oxford Dictionary (3rd edn.), is 'to take (a thing) on security given for its safe return. To take a thing on credit on the understanding of returning it or an equivalent'. Reference in this respect may also be made to CEPT v. Bhartia Electric Steel Co. Ltd. : 25ITR192(Cal) . In this also, the question was whether it was ' money had and received' ; or 'borrowed money'. It was held that there has to be a positive act of lending coupled with acceptance by the other side of the money, as a loan. Thus, it is clear that an element of refund or repayment is inherent in the concept of borrowing. There is no provision in the Act which contemplates the repayment of the capital so provided under Section 23 of the Act.
11. Apart from that, Section 23 of the Act provides that the Central Govt. and the State Govt. may provide any capital. In other words, it is not by virtue of any agreement, etc., between the parties, but because of the statutory provision that the Governments are obliged to provide the capital. It is under Section 26 of the Act that the corporation may borrow money in the open market for the purpose of raising its working capital. Thus, the distinction has been made in the Act itself between the ' capital provided' under Section 23 and the 'capital borrowed' under Section 26. It is further clear from the provisions of Section 99(2), which reads :
'In the event of a Corporation being placed in liquidation, the assets of the Corporation, after meeting the liabilities, if any, shall be divided among the Central and the State Governments and such other parties, if any, as may have subscribed to the capital in proportion to the contribution made by each of them to the total capital of the Corporation.'
12. There is no obligation to refund the capital provided by the Governments. In this view of the matter, the 'capital provided' under Section 23 of the Act by the two Governments, cannot be said to be 'capital borrowed' as contemplated under Section 96(1)(iii) of the I.T. Act.
13. Thus, the answer to the question is in the negative, that is, against the assessee and in favour of the revenue. The reference is answered accordingly, with costs.