TaxTMI 
TaxTMI 
1987 (2) TMI 105
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....m for the assessment year 1981-82. The assessee accordingly had no share income from the firm and for the assessment year under consideration the assessee has not, therefore, shown any income from the firm. However, before the ITO, the assessee claimed that interest to the tune of Rs. 29,195 paid by him on capital borrowed for investment in the firm should be allowed to be set off against the income from speculation. The ITO was of the opinion that since there was no income from the firm this year, there was no justification for allowance of interest paid by the assessee on the money borrowed for making capital investment in the firm. He accordingly disallowed the assessee's claim for deduction of the aforesaid amount of interest. During the relevant accounting year the assessee also had income from his speculation business which is a business distinct and separate from the business of the assessee as a partner of the aforesaid firm. 4. The assessee appealed to the AAC before whom it was submitted on behalf of the assessee that the ITO was wrong in not allowing deduction for the loss suffered by the assessee by way of payment of interest on the capital borrowed for the purpose o....
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....id on the amount borrowed for the purpose of investment in the firm and, therefore, the expenditure incurred by the assessee in making payment of interest on the borrowed capital is clearly allowable as deduction in computation of the assessee's income of the assessment year 1981-82. In support of his contention Shri Jain placed reliance on the decision of the Delhi High Court in the case of CIT v. Madan Lal Jain [1982] 136 ITR 409. 7. We have considered the rival contentions as also the facts on record. There is no dispute in this case about the material facts which have already been stated above. The question which required consideration is whether the expenditure of Rs. 29,195 incurred by the assessee on the capital borrowed for the purposes of investment in the firm in which he is a partner is allowable as deduction in the computation of his income for the assessment year 1981-82. 8. In the case of CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 their Lordships of the Supreme Court considered the question as whether interest on moneys borrowed for investment in shares is an allowable expenditure under section 57(iii) of the Act, when the shares have not yielded any return....
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....ii) it does not make any difference in principle, for the Supreme Court itself makes clear that language under section 37(1) of the Act is wider still. Following the decision of the Supreme Court in the aforesaid case, their Lordships of the Delhi High Court held that the interest paid by the assessee cannot be disallowed merely because during the previous year in question no share income has actually resulted from the firm. The question was accordingly answered in the affirmative and in favour of the assessee. 10. With great respect to their Lordships of the Delhi High Court we are of the view that the decision of the Supreme Court in the case of Rajendra Prasad Moody cannot be applied to a case where the assessee claimed deduction on account of interest paid on capital borrowed for the purpose of investment in the firm in which he is a partner even if during the relevant previous year no share income has actually resulted from the firm. As has already been shown above, the ratio of the decision in the case of Rajendra Prasad Moody turns on a true interpretation of section 57(iii). Their Lordships have clearly mentioned in that case that under section 57(iii) it is the purpose ....
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....m the firm in which the assessee is a partner. If a claim is negatived on the phraseology of section 67(3), the assessee cannot fall back on section 36(1) (iii) which is in the nature of a general provision relating to all businesses. In such a situation section 36(1) (iii) will have no application and the claim for deduction cannot be allowed under the provision of this section. 13. The view that we have taken finds full support from the decision of the Madras High Court in the case of M. S. P. Raja. In this case also the Madras High Court was concerned with a similar question. It was held that section 67(3) proceeded on the basis that in computing the income chargeable on the profits and gains of business or profession, which the share income would come under, the interest paid could be deducted from the share. There must be some share income in order to justify the assessee's claim for deduction under section 67(3). When there is none, it is not possible to accept the claim for deduction under that provision. It was further held in this case that in the case of interest payable by a partner for investment in a firm, the claim has to be considered only under section 67(3) and ....