COMMISSIONER OF INCOME TAX vs MEERUT BIRI FACTORY.

Pursuant to the order passed by this Court under s. 256(2) of the IT Act, 1961 (briefly, the Act), the Tribunal referred the following questions for opinion of this Court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the amount collected on account of charity was not the income of the assessee and was not includible in its assessments ?

Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the interest paid to Smt. Meera Agarwal was not disallowable under s. 40(a)(i) of the IT Act, 1961 ?"

So far as question No. 1 arising out of ITA Nos. 113, 114 and 115 of 1979 is concerned, learned Standing Counsel states that the same is covered by the decision of Supreme Court in Commissioner of Income Tax (Central), New Delhi Vs. Bijli Cotton Mills (P.) Ltd., in which the Court held that when the customers or brokers paid the amounts to the respondent earmarking them for "Dharmada", those payments were validly earmarked for charity; in other words, right from the inception those amounts were received and held by the respondent under an obligation to spend them for charitable purposes only, with the result that those amounts were not its trading receipts; and therefore, they could not be brought to tax. Similar view was taken by the Tribunal. Following the said authority we answer the question in the affirmative i.e. in favour of the assessee and against the Revenue.

Question No. 1 arising from ITA Nos. 116 and 117 is identical to the aforementioned question which too is answered in the affirmative i.e. in favour of the assessee and against the Revenue on the basis of the aforementioned Supreme Court decision.

Question No. 2 arising from ITA Nos. 116 and 117 raises a controversy whether the Tribunal was legally correct in holding that interest paid to Smt. Meera Agarwal was not allowable under s. 40(a)(i) of the Act. Sec. 40(a)(i) of the Act provides that notwithstanding anything to the contrary in ss. 30 to 38, any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938) royalty, fees for technical services or other sum chargeable under this Act, which is payable outside India, on which tax has not been paid or deducted under Chapter XVII-B shall not be deducted in computing the income chargeable under this Act as profits and gains of business or profession.

From the delineated portion it is manifest that only the interest which is payable outside India, shall not be deducted. In this case it is undisputed that the interest has been credited in the books of assessee in India and, therefore, s. 40(a)(i) is not attracted to the facts of the case and the interest paid to Smt. Meera Agarwal cannot be disallowed under that provision. The question is answered in the affirmative i.e. in favour of the assessee and against the Revenue.