1978 (1) TMI 54

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....ion of Rs. 45,898 towards payment of interest on borrowings. The Income-tax Officer made a proportionate disallowance amounting to Rs. 20,886 because the assessee had, in fact, not charged interest from various persons to whom it had lent money, though the advances to some of those persons were from borrowings from the banks. He, therefore, made allocation on a proportionate basis. The assessee went up in appeal. The Appellate Assistant Commissioner upheld the disallowance but on a different ground. He relied upon the previous history of the case under which a donation made by the assessee to the Ganga Sagar Jatia Engineering College was a transaction on which interest had been disallowed in the previous years. He, therefore, confirmed t....

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.... account of the institution. At the close of the accounting year, after debiting the aforesaid sum of Rs. 10 lakhs the capital account showed a net credit of Rs. 15,06,920. The amount actually paid by the assessee during the year of account to the institution was only Rs. 5,50,000. The balance of Rs. 4,50,000 was treated as a debt due to the institution and accordingly the assessee was debited with interest thereon. The assessee had an overdraft account with the Central Bank of India. At the beginning of the accounting year, the amount outstanding on the overdraft was Rs. 2,76,965. Further overdrafts were raised during the year so that at the end of the year the liability of the assessee to the bank stood at Rs. 9,55,460. Among further debi....

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....d that the payment of Rs. 5,50,000 was made on the ground of commercial expediency. No commercial expediency was involved in making payment to the engineering college. The borrowing was not made for the purpose of the business, either directly or indirectly. On these findings, this court upheld the disallowance of interest paid on the borrowing of Rs. 5,50,000. It is obvious that the facts have changed. The borrowing which represented the payment of the donation to the engineering college has now disappeared. The Tribunal has found that the assessee had sold shares in order to wipe out the overdraft representing the aforesaid borrowings. Now the position is that the assessee does not owe to the bank any sum which it had paid initially to....