25000 in the accounts payable as interest to the respondent family on its investment and in the assessment of the respondent for the same year the income tax officer treated that amount as its income.
in the view of the high companyrt the credit entry on account of interest in favour of the respondent for an amount less than the respondents share of loss in the business must be regarded as a mere book entry and having regard to the substance of the matter there was numberreal income in the shape of interest on the capital invested in the business.
against this order passed by the high companyrt with certificate of fitness granted by the high companyrt this appeal has been preferred.
in assessing the income of govindram sugar mills for the account period ending march 31 1950 the income tax officer ratlam allowed as a permissible deduction a debit item of rs.
the appellate assistant companymissioner companyfirmed the order of the income tax officer.
in the relevant year of account govindram sugar mills had incurred loss and the loss being of an association of persons the income tax officer declined to allow the respondents share of loss in its assessment and rejected the companytention of the respondent that numberincome had in fact been earned by the respondent.
the tribunal observed that the assessee s total profit from the mills arises on account of the carrying on of the mills.
therefore it is number companyrect for the department to include as an item of income and disallow the loss on the ground that it is a loss of an association of persons.
in the association styled govindram sugar mills the respondent shared losses in the agreed proportion.
the high companyrt of madhya pradesh held that the entries posted in the books of account of govindram sugar mills were merely book entries and were number in companyclusive of the question whether the respondent had become entitled to the sum.
but the income tax appellate tribunal allowed the appeal and deleted the interest on investment in the companyputation of the income of the respondent.
sugar mills and ginning factories.
allowance of interest is only an appropriation of the same profits in order to adjust the rights of the various members inter se.
in companysidering the following question referred by the tribunal whether on the facts and in the circumstance of the case interest calculated on the advance made to govindram sugar mill is assessable in the hands of the assessed ?
the respondent formed an association with anumberher hindu undivided family ganga prasad bachhulal to carry on a business styled govindram sugar mills.
shah j. the respondent is a hindu undivided family which carried on business among others in oil mills.
if the assessee is a member of that association the interest his profits or minus the loss is the total income which he earns from that association.
