2000 (11) TMI 64

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....in short, "the Act") : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amounts of salaries due to the directors of the company, but not paid to them and utilised by the company for the purposes of its business, constituted capital borrowed for the purposes of its business within the meaning of section 36(1)(iii) of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest paid by the assessee to the directors on such undisbursed salaries constituted interest on capital borrowed for the purposes of the business within the meaning of section 36(1)(iii) of the Act ?" A brief refer....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... carry on its business. Accordingly, it was held that the amounts in question were allowable in terms of section 36(1)(iii) of the Act. On being moved for a reference, the questions, as set out above, have been referred for the opinion of this court. We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessee in spite of notice. The only question that needs adjudication according to us is whether the Tribunal was justified in holding that the amounts, which were due to the directors and had not been paid but utilised in the manner described by the Tribunal, constituted capital borrowed for the purpose of its business within the meaning of section 36(1)(iii) of the Act. Section 36(1)(iii) of the Act ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....te cannot be regarded as borrowed capital for the expression "capital" predicates the relationship of a borrower and a lender, which relationship has to be found as a matter of fact. Conceptually, for the purpose of section 36(1)(iii) "interest" is relatable only to money borrowed and not on debt incurred. The word "interest" has a basic meaning of advantage or profit and with reference to a loan it means the profit or advantage of the creditor which he gets by giving to another the use of his money. Interest can be described as consideration paid either for use of money or for for bearance in demanding it after it has fallen due. It is a compensation allowed by law or fixed by parties or permitted by custom or usage, for use of money belon....