(a) Income-tax---

----Interest on borrowed capital---Reference---Finding that borrowed capital had been used for purposes of business---Finding of fact---Interest was deductible---Indian Income Tax Act, 1961, S.36.

(b) Income-tax---

---Business expenditure ---Reference---Finding that expenditure had been incurred for purposes of business---Finding of fact---Amount expended was deductible---Indian Income Tax Act, 1961, S.37.

(c) Income-tax---

----Business expenditure---Provision made for liability---Finding that liability was not contingent---Amount was deductible---Indian Income Tax Act, 1961, S.37.

Held, (i) that the Tribunal accepted the case of the assessee for allowing deduction under section 36 of the Income Tax Act, 1961, saying that all the ingredients of clause (iii) of section 36(1), have been established by the assessee. This was purely a finding of fact. Hence, the sum of Rs.85,711 paid to S as interest on borrowed capital was an allowable deduction under section 36(1)(iii).

(ii) That the Tribunal came to the conclusion that the expenditure of Rs.4,740 had been incurred for the purpose of business. This being a finding of fact had to be accepted. The amount was deductible.

(iii) That the assessee had made provision towards a liability of Rs.19,952. The Tribunal had considered the evidence and found that the liability was not contingent. It was, therefore, deductible.

JUDGMENT

The Income-tax Appellate Tribunal (Allahabad Bench) referred the following questions for opinion of this Court relating to the assessment year 1963-64:

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is legally justified in its opinion that the sum of Rs.85,711 paid to Swadeshi Cloth Dealers Ltd. as interest on borrowed capital was an allowable: deduction under section 36(1)(iii) of the Income Tax Act, 1961?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was legally correct in its conclusion that the amount of Rs.4,740 Was expenditure for the purpose of the business of the assessee and the assessee was entitled for its deduction?

(3) Whether, on the facts and circumstances of the case, the Appellate Tribunal's view that it is not connect that the liability of Rs.19,952 was contingent in nature and it was allowable in the assessment year under consideration is legally correct?"

We first take up question No. l The question for consideration is whether interest. on borrowed capital was an allowable deduction under section 36(1)(iii) of the Income Tax Act, 1961. The Tribunal accepted the case pf the assessee for allowing deduction under section 36 saving that all the ingredients of clause (iii) of section 36(1) have been established by the assessee.

In our opinion, thus is purely a finding of fact which has been recorded by the Tribunal and there is no reason to doubt the correctness of the same. We, therefore, answer this question in the affirmative, i.e., in favour of the assessee and against the Revenue.

Then we come up to question No.2. The short question for consideration is whether the amount of Rs.4,740 was rightly held by the Appellate Tribunal as expenditure incurred for the purpose of business of the assessee. The Tribunal came to the conclusion that the said expenditure was incurred for the purpose of business. This being a finding of fact has to be accepted and, therefore, we answer question No.2 in the affirmative, i.e., in favour of the assessee and against the Revenue.

Lastly, we come to question No.3. ??????

The finding of Appellate Tribunal on this question is as follows:

"We agree with this proposition of law stated by the assessee. The dispute arose in 19:54 for which a suit was filed in the same year. The assessee knew its position and, accordingly, it made a provision for Rs.29,290. Therefore, it is not correct that the liability was contingent in nature. It was provided in the lease deed that the lessee shall be at liberty to add, install or erect such further machineries, plant and equipments as he may choose or consider necessary for the efficient carrying on or of manufacturing process of the mills, provided that the installations shall be made, with the previous intimation in writing giving specification of the same to the lessors. The responsibility to maintain the replacement machines in their present condition shall be that of the lessee, who shall redeliver the same to the lessor on determination of the lease. The lessee shall reinstall the removed plant and machineries at their original place at their own cost unless otherwise mutually agreed upon. The plant, machineries and equipments so installed or erected shall be the absolute property of the lessee. The lessee shall at any and all times by fully entitled to remove such machines, plant and equipments or plant thereof on intimation in writing to the lessors. Therefore, the assessee was to pay Rs.19,952 and the balance amount has already been written back during the assessment year 1967-68. As such, we allow the claim of the assessee."

We fully agree with the above finding of the Appellate Tribunal that the liability was not contingent in nature and hence this question is also answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

The record be sent down to the Appellate Tribunal to pass an order conformably to our order.

M.B.A./4063/FC???????????????????????????????????????????????????????????????????????????????? Reference answered.