Alice Arun Thomas Vs ITO (Kerala High Court)
The Kerala High Court dismissed the appeal challenging the order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench, which had denied the assessee’s claim for deduction under Section 36(1)(iii) of the Income Tax Act.
The appellant contended that she had borrowed money from the open market and invested the borrowed funds as capital in a partnership firm of which she was a partner. According to her, the firm paid interest on such capital investment, and the interest received was used to repay the persons from whom she had borrowed the money. She argued that the interest paid on the borrowed capital was eligible for deduction under Section 36(1)(iii) of the Act and that the Tribunal had wrongly held otherwise.
The Revenue opposed the claim, arguing that the amounts received by the appellant from the partnership firm were profits and could not be treated as expenditure in her hands. It was further contended that the claim under Section 36(1)(iii) was misconceived and that the Tribunal had committed no error in rejecting it.
The High Court examined the pleadings, the questions of law framed, and the submissions made by both sides. The Court noted that the Tribunal had also considered the factual circumstances and had found that Section 37(1) of the Act stood against the appellant’s claim for deduction.
