1978 (7) TMI 138

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....akshmi. This amount was disallowed by the ITO on the ground that her deposit with the assessee firm could not be treated as borrowed money under s. 36(1)(iii) of the IT Act, 1961. In support of this, the ITO relied on a number of decisions referred to in his order. He also referred to s. 40A(2)(a) of the Act and held that only interest at the market rate of 12 per cent could be allowed. The AAC, however, deleted this addition accepting the contentions of the assessee. He held that the ITO did not dispute that the amount of credit balance in the capital amount of Smt. Vijaya Lakshmi in the books of accounts on the even of her retirement from the firm was a trade liability, that the interest paid by the assessee on this liability was, therefo....

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....5 and allowed by the ITO in the next asst. year 1976-77. In this connection, he referred us to the order of the Tribunal for the asst. year 19974-75 and the asst. order for the year 1976-77 and other papers. He further submitted that on the retirement of Smt. Vijaya Lakshmi, the assets and liabilities of old firm were taken over as a going concern by the new firm and the amount due to Smt. Vijaya Lakshmi represented capital borrowed for the purpose of business under s. 36(1)(iii) of the Act and that the interest paid thereon would be an admissible deduction either under s. 36(1)(iii) or under s. 37(1) or under s. 28(1) of the Act. He, therefore, argued that there was no substance in the Department's objection to the order of the AAC on this....

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....ted capital borrowed within the meaning of s. 36(1)(iii) of the Act and that the dispute was only in regard to the rate the dispute was only in regard to the rate of interest payable on the said amount of capital borrowed by invoking the provisions of s. 40-A(2) of the Act. It is further seen from the asst. order for 1976-77, which is at pages 8 and 9 of the assessee's paper book, that the interest paid to this lady on the amount due to her was fully allowed by the ITO as there is no such disallowance made by him in the said order. It appears that the ITO specifically went into this question as could be seen from the assessee's reply dated10th Jan., 1977which is at pages 6 and 7 of the paper book. 7. In the light of the above facts, we a....

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....as High Court relied on by the Revenue are not applicable to the facts of the present case. We, therefore, respectfully follow the decision of the Allahabad High Court and hold that the AAC was right in deleting this addition made by the ITO. We would further make it clear that there was no dispute before us about the admissibility of this claim under s. 40-A in view of the decision of the Tribunal in the earlier asst. year 1974-75. We accordingly confirm the order of the AAC on this point. 8. The next objection is to the deleting of Rs.252 disallowed by the ITO under s. 40(b) of the Act. According to the ITO, this represented interest paid to partner Shri G.S. Rastogi. This identical issue came up for consideration before the Tribunal f....