SIKKA STEEL & HEAT TREATMENT CENTRE NEW DELHI vs. COMMISSIONER OF INCOME TAX DELHI & ANR

IN THE HIGH COURT OF DELHI AT NEW DELHI . ITA 525/2008 . . . SIKKA STEEL and HEAT TREATMENT CENTRE NEW DELHI ..... Appellant Through Mr. Satyen Sethi, Adv. . versus . COMMISSIONER OF INCOME TAX DELHI and ANR ..... Respondent Through Mr. R.D. Jolly, Adv. CORAM: HON'BLE MR. JUSTICE MADAN B. LOKUR HON'BLE MR. JUSTICE MANMOHAN SINGH . O R D E R 25.04.2008 . The Assessee is aggrieved by an order dated 28th April, 2006 passed by the Income Tax Appellate Tribunal, Delhi Bench ?F?, New Delhi (the Tribunal) in ITA No.446/Del/2003 relevant for the Assessment Year 1998-99. The Assessee is a partnership concern and it had taken certain overdraft facilities from the bank as well as certain unsecured loans. The Assessee claimed a deduction on account of interest paid to the bank under Section 36(1)(iii) of the Income Tax Act, 1961 (the Act). It was noted that the partners of the firm had borrowed huge amounts from the capital of the partnership firm. . ITA No.525/2008 Page 1 of 3 The Tribunal noted that for availing the benefit of deduction on account of interest under Section 36(1)(iii) of the Act, the Assessee has to satisfy three conditions, that is, (i) money must have been borrowed by the Assessee, (ii) it must have been borrowed for the purpose of business and (iii) the Assessee must have paid interest on the said amount. The Tribunal noted that the dispute in the present case is with regard to the second item, which pertains to the utilization of the money borrowed for the purposes of the Assessee?s business. All the three authorities below have held that the Assessee did not have any funds of its own and almost the entire funds were borrowed by it on interest either from the bank or from other parties and a substantial amount of this borrowed capital, to the extent of Rs.23 lakhs, was withdrawn by the partners on their capital account, the only source of which was the borrowed funds. Under these circumstances, it was held that the partners had withdrawn amounts from borrowed funds of the Assessee. It is for this reason that it was held that one of the conditions of Section 36(1)(iii) of the Act was not satisfied and, therefore, the Assessee was not entitled to the deduction claimed. . . ITA No.525/2008 Page 2 of 3 We are of the opinion that no fault can be found in the conclusion that has been arrived at by the Tribunal on the above facts or in holding that the Assessee was not entitled to a deduction under Section 36(1)(iii) of the Act. We do not find any perversity in the view that has been taken by all the three authorities below. No substantial question of law arises. . . Dismissed. . . MADAN B. LOKUR, J . . . MANMOHAN SINGH, J APRIL 25, 2008 vk . . . . . . . . . . . . . . . . ITA No.525/2008 Page 3 of 3 .