JUDGMENT
A.R. Tiwari, J.
1. The applicant-assessee has filed these applications under Section 256(2) of the Income-tax Act, 1961, seeking a direction to
the Income-tax Appellate Tribunal, Indore, to state the cases and refer the common questions of law as proposed in these applications for opinion of this court :
” (1) Whether the Tribunal was correct in law in reconsidering its decision dated July 18, 1983, for the assessment years 1976-77 and 1977-78 ?
(2) Whether the Tribunal was right in law in disallowing the interest on the entire debit balances of the partners including opening balances ?
(3) Whether the Tribunal was correct in law in allowing the Department’s appeal against the law laid down by the Madhya Pradesh High Court in the case of Alok Paper Industries reported in [1982] 138 ITR 729 ?”
2. The facts lie in a narrow compass. The applicant-assessee is a partnership firm registered under the Partnership Act and is assessed to income-tax in the status of a registered firm. In respect of the assessment for the assessment years 1978-79 (Miscellaneous Civil Case No. 141 of 1989) ; 1979-80 (Miscellaneous Civil Case No. 146 of 1989) ; 1980-81 (Miscellaneous Civil Case No. 143 of 1989); and 1981-82 (Miscellaneous Civil Case No. 144 of 1989), the Income-tax Officer passed the order of assessment and disallowed part of the total amount claimed by way of interest paid to the creditors on the ground that there were overdrawing and consequent debit balances in the accounts of the partners holding that to the extent of these overdrawings the borrowings could not be said to be for the purposes of business. Aggrieved by the order of the Income-tax Officer, the applicant filed four separate appeals before the Commissioner of Income-tax (Appeals)-I, Indore, registered as Appeal No. IT-1180/81-82/310 ; IT-762/81-82/311 ; IT-603/82-83/312 and IT-288/83-84/313, respectively. These appeals were decided by a common order dated October 31, 1983. The appellate authority accepted the contention of the applicant and following the decision reported in CIT v. Alok Paper Industries [1982] 138 ITR 729 (MP) held that the Income-tax Officer was not justified in disallowing part of the interest paid on the borrowings (annexure-‘B’). The non-applicant/Revenue then filed appeals before the Income-tax Appellate Tribunal registered as ITA No. 15/(Ind) of 1984 ; ITA No. 16/(Ind) of 1984 ; ITA No. 17/(Ind) of 1984 ; and ITA No. 18/(Ind) of 1984, respectively. The Tribunal held that the facts of the aforesaid decision were different and distinguishable. It, therefore, followed its own order passed in Miscellaneous Application No. 65/(Ind) of 1982 in respect of the earlier assessment years. The Tribunal thus ordered that the appeals for the assessment years
1978-79, 1980-81 and 1982-82 shall stand partly allowed and ordered that the appeal for the assessment year 1979-80 shall stand dismissed. The Department filed miscellaneous applications for rectification which were registered as Miscellaneous Application No. 3/(Ind) of 1986, for the assessment years 1978-79 to 1981-82 arising out of the ITA Nos. 15 to 18/(Ind) of 1984. These miscellaneous applications were allowed by order dated June 6, 1986. The assessee filed applications registered as RA Nos. 88 to 91/(Ind) of 1986 arising out of the order of the Tribunal in Miscellaneous Application No. 3/(Ind) of 1986, dated June 6, 1986, under Section 256(1) of the Income-tax Act. These applications were rejected by common order dated November 21, 1988. Thereafter the applicant has filed these four separate miscellaneous civil cases for the aforesaid four assessment years.
3. We have heard Shri G.M. Chaphekar, learned senior counsel with Shri Sharda for the applicant/assessee, and Shri D.D. Vyas, learned counsel for the non-applicant/Department, in all these four cases,
4. Shri Chaphekar submitted that the Tribunal had no jurisdiction to disallow the interest on the entire debit balances including opening balances, of the partners. He also submitted that the Tribunal committed grave error of law in following its earlier order in Miscellaneous Application No. 65/(Ind) of 1982 and not following the decision of this court reported in CIT v. Alok Paper Industries [1982] 138 ITR 729. According to him, the point concluded by this decision is not liable to be ignored on the casual observation that the facts are different from the facts in the cases on hand. In further pursuit, he submitted that it is the logic and ratio contained in the decision which are required to be appreciated and followed. He, therefore, submitted that at least questions Nos. 2 and 3 as proposed did arise out of the orders for reference and opinion of this court. He has elected not to press question No. 1,
5. Shri D.D. Vyas, on the other hand, submitted that the orders of the Tribunal are based on appreciation of facts and as such they are not referable questions of law.
6. In our view, it is necessary to decide whether or not the view taken by the Tribunal is in conflict with the decision rendered by this court ? It also seems necessary to consider the question whether or not the disallowance of the interest on the entire debit balances, including the opening balances, of the partners is legal and valid ?
7. We have perused the orders of the Tribunal and considered the submissions and find that two questions do arise for reference.
8. In the result, we call upon the Tribunal to state the cases pertaining to all these four assessment years and refer to this court the undernoted questions of law for its opinion :
(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in disallowing the interest on the entire debit balances, including opening balances, of the partners ?
(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the Departmental appeals on following its earlier order rendered in Miscellaneous Application No. 65/(Ind) of 1982 and in holding that the decision reported in CIT v. Alok Paper Industries [1982] 138 ITR 729 (MP) was inapplicable ?”
9. These reference applications are thus allowed in terms indicated above but without any order as to costs.
10. Counsel fee in each case for each side shall, however, be fixed at Rs. 750, if certified.
11. A copy of this order shall be forwarded to the Tribunal for compliance within nine months from the receipt of the copy of the order.
12. Retain this order in Miscellaneous Civil Case No. 141 of 1989 and place its copy each in the connected miscellaneous civil cases for ready reference.