K.S. VISWANATHAN, A.M. ORDER We find it convenient to dispose of these three appeals together since issue to be decided is same, viz., whether assessee is entitled to deduction under s. 80V of IT Act, 1961 ('the Act') of interest debited to his account in books of firm in which he is partner. 2 . assessee is individual. He was partner in firm M.C. Ghia & Co. His personal account in firm has been treated somewhat like current account. His income receipts are credited in that account. So too his drawings and payment of taxes. partnership DEBIT . CREDIT d e e d did not stipulate that partners would be debited with interest. Nevertheless, interest has been charged on debit balances. T h e accounting years are financial years. For year ending 31st M r c h , 1976, summary of account shows :. . Rs. . Rs. Balance 16,32,856 Deposits 85,693 brought forward Share of Withdrawals 1,79,535 28,311 profit Interest 1,47,257 . . Share of Balance profit transferred 28,311 18,74,056 brought down to HUF . 19,88,059 . 19,88,059 3 . For other two accounting years also, position was same. There was debit balance to which interest was debited. For year ended 31st March, 1977, interest debited was Rs. 1,04,852 and for year ended 31st March, 1978 interest was Rs. 1,16,886. Part of brought forward debit balance was said to be withdrawals made on account of payment of his personal income-tax over years. 4. For asst. yrs. 1976-77 and 1977-78, assessee did not make any claim for deduction under s. 80V before ITO. However, he moved revision petition under s. 264 of Act. CIT by his order dt. 3rd Sept., 1979 set aside assessments and directed ITO to allow deduction after verifying assessee's claim and in accordance with law. In assessment for 1978-79, claim was made before ITO himself. 5. For asst. yr. 1976-77, ITO held that under s. 80V only borrowals made for payment of taxes after 1st April, 1976 would be eligible for deduction. Calculating interest at rate of 9 per cent he allowed deduction of Rs. 2,085. 6. For asst. yr. 1977-78, he found that nothing was drawn from firm for payment of taxes. Therefore, nothing is allowable under s. 80V. 7. For asst. yr. 1978-79, he found position to be same as 1977- 78 and there were no specific withdrawals for payment of taxes and that drawings of year were much less than deposits. So there could be no deduction under s. 80V. 8. CIT(A) dismissed appeals. It was submitted before him that ITO cannot put in his own interpretation of s. 80V since CIT in his order under s. 264 has accepted in principle claim. This submission was rejected by pointing out that ITO has been directed to examine claim in accordance with law which allowed ITO to examine legal aspects. Apart from this, CIT(A) found, on examination of accounts that it represented sort of current account and it cannot be said that debits for tax payments are substantial borrowals made from firm. assessee was having substantial income in all these years. There was nothing to show, according to him, that tax payments were made from borrowings. He agreed with ITO on interpretation of s. 80V also allowance under this section would be limited to only such interest as is payable on borrowings made for taxes paid after 1st April, 1976. 9 . assessee is on further appeal before us. We have heard Shri Gautam Doshi for assessee and Shri Mahadeshwar for Department. What is scope of s. 80V is first issue to be decided. According to ITO, section is applicable only for tax payments effected from borrowals after 1st April, 1976 i.e., date on which s. 80V came into force. According to assessee, it covers tax payments prior to 1st April, 1976 also. section reads as follows : "In computing total income of assessee, there shall be allowed by way of deduction any interest paid by him in previous year on any money borrowed for payment of any tax due from him under this Act." There is only one condition laid down in section. That is, assessee must have borrowed and borrowed funds must be utilized in payment of taxes under Act. There is nothing in section which states that taxes paid should have been after 1st April, 1976. Unless we add 'after 1st April, 1976' at end of section, it would not be possible to agree with Department's interpretation. It is well settled that taxing statute must be read as such and nothing should be added or subtracted to words. 10 . Similarly, there is nothing in section to suggest that borrowings should be after date section has come into force. All that is required is there should be payment of interest during accounting year. taxes could have been paid prior to 1st April, 1976. But borrowals must be outstanding on 1st April, 1976 and assessee should be liable for payment of interest thereon. If these conditions are satisfied, deduction will be available under s. 80V. 11. next issue to be decided is, is there borrowal at all ? There is legal aspect to it as well as factual. We will first deal with factual aspect. CIT has given finding there is not. He points out that drawings of this year is less than receipts credited for three years under consideration. But Shri Doshi referred to opening debit balances for each of years and stated that large part of opening balances refer to drawings specifically made for payment of taxes. 12. second aspect is this : Whether overdrawing from his account in partnership firm could be considered as borrowal. Can partner be said to have borrowed from his firm ? 13. We take factual aspect first. ITO has held that there was no borrowing at all for two of years on ground that drawings for payment of taxes from firm was much less than receipts deposited to his credit therein. In other words, he has held that payment of taxes were effected by drawing on his own funds temporarily deposited with firm. CIT(A) has also given similar finding although he has not based his decision on that point. He says in para 5 of his order, "It cannot be said that debits for tax payments in account are substantially borrowals made by appellant from this firm. appellant is having substantial income in all these years in respect of which taxes have been paid. There is nothing to show that it cannot be said that these tax payments have come out of this income which has been credited in this account and may as well be elsewhere". To illustrate what CIT(A) says is this : For year ended 31st March, 1975, deposits made during year was Rs. 8,94,994. Share of profit credited is Rs. 52,355. tax payment of that year was only Rs. .57 lakh. This amount comes from deposits of this year only and does not represent borrowals. 14. Shri Doshi's answer to this point is that if there had been drawings by partner beyond credits, it has to be treated as borrowals only. He relies on s. 11 of Indian Partnership Act, 1932, and cl. 9 of partnership deed. Now issue is not, for present, whether this represents borrowal or not. issue is : From where funds for payment of tax has come from is it from amounts deposited by assessee in course of year or is it from funds of firm ? There is no clear answer given to this question. It is, of course, for assessee to prove that payment of taxes were effected from borrowed funds and not amounts deposited in course of year. 15. assumption on which Shri Doshi has made out his case can be understood in following manner. Right from accounting year ended 31st March, 1962, assessee has only debit balance in books of account of firm. This debit balance which stood at .03 thousand on 31st March, 1962 had risen to Rs. 18.74 lakhs by 31st March, 1976. payment of taxes and other withdrawals would necessarily increase debit balances. Therefore, any withdrawal made from firm, whether for payment of taxes or for personal expenses comes only from borrowed funds. This submission assumes that after debit balance comes into existence, each rupee deposited first would be appropriated to payment of borrowals. So there is nothing kept separate, which can be drawn upon. 16. We think assessee is right. Now firm is maintaining only one account. It is to this account income receipts of assessee are credited. In this background of fact that assessee has debit balance, question would be how receipts which are credited to his account is to be treated ? We are of opinion that s. 60 of Indian Contract Act, 1872, containing rules of appropriation would be applicable. This section says that where debtor has omitted to intimate and there are no other circumstances indicating to which debt payment is to be applied, creditor may apply it at his discretion to any lawful debt actually due and payable to him from debtor. Since account in books of firm is only one and since amount is credited first to that account, and in absence of any clear indication either by words or by conduct, we will have to assume that firm had applied receipts only to discharge of existing debts. Thereafter if assessee makes further drawings, it would be only fresh borrowal. We are, therefore, unable to accept Department's contention that tax payments made by assessee have not come from funds of firm. 17. We will now consider legal aspect, i.e., whether overdrawings of partner from books of firm would amount to borrowal within meaning of s. 80V. We may make it clear at this stage itself that this question does not arise for asst. yr. 1976-77, i.e., because ITO himself has accepted that these overdrawings will amount to borrowal. He has, as matter of fact, allowed interest payment of Rs. 2,085 under s. 80V. That means Department accepted that this amounts to borrowal. Therefore, for asst. yr. 1976-77, it is not open for us to consider this aspect at all. It is, however, to be considered only for asst. yrs. 1977-78 and 1978-79. 18. expression 'monies borrowed' is in substance equal to term 'borrowed money'. expression 'borrowed money' has been subject-matter of decision of Supreme Court in case of K.M.S. Lakshmanier & Sons vs. CIT (1953) 23 ITR 202. It has been held therein that term 'borrowed money' must be construed in its natural and ordinary meaning and implies real borrowings and real lending. So question is whether monies overdrawn by partner would be real lending. 1 9 . Supreme Court has occasion to consider relationship between partner and firm in case of CIT vs. R.M. Chidambaram Pillai 1977 CTR (SC) 71 : (1977) 10 6 ITR 292 (SC). Supreme Court observed : ". . . Here first thing that we must grasp is that firm is not legal person even though it has some attributes of personality. Partnership is certain relation between persons, product of agreement to share profits of business. 'Firm' is collective noun, compendious expression to designate entity, not person. In income-tax law firm is unit of assessment, by special provisions, but is not full person which leads to next step that since contract of employment requires two distinct persons, viz., employer and employee, there cannot be contract of service, in strict law, between firm and one of its partners . . . " It would be seen from above, that Supreme Court is of opinion that there cannot be relationship of employer and employee between partner and firm. Later quoting Lindley on Partnership, Supreme Court observed : "The firm is not recognised by English lawyers as distinct from members composing it. In taking partnership accounts and in administering partnership assets, Courts have to some extent adopted mercantile view, and actions may now, speaking generally, be brought by or against partners in name of their firm ; but, speaking generally, firm as such has no legal recognition. law, ignoring firm, looks to partners composing it ; any change amongst them destroys identity of firm ; what is called property of firm is their property, and what are called debts and liabilities of firm are their debts and their liabilities. In point of law, partner may be debtor or creditor of his co-partners, but he cannot be either debtor or creditor of firm of which he is himself member, nor can he be employed by his firm, for man cannot be his own employer." (Emphasis, italicised in print supplied) above quotation cited with approval by Supreme Court makes it clear that in law partner cannot be debtor or creditor of firm of which he himself is member. No higher authority is required to show that assessee cannot be considered as borrower from firm. Neither can it be said there is any real lending in sense in which term borrowed monies have to be understood. Our finding in above paras is only that assessee has not and cannot legally be said to be borrower of funds from firm. By giving this decision, point is not yet fully disposed of. assessee as matter of fact did not have funds with him. He has utilised funds of firm for discharging his liabilities. Insofar as assessee had utilized funds of someone else, he had become indebted to that other person. We have to find out who is that other person. We have further to give finding whether it could be considered as borrowing for purpose of s. 80V. In order to give finding on this point we have again to refer to quotation from Lindley on Partnership. It will be seen from quotation that such transaction should be considered as borrowal from co-partner. Now, on basis of ratio laid down therein, we must give finding that there is borrowal from assessee's co-partner in this firm. There are two partners only in this firm, assessee and his brother. We have to give finding on basis of principles of law laid down by Supreme Court that creditor is partner. As far as co-partner is concerned, conditions of s. 80V will be satisfied. He is separate person and assessee can have dealings with this partner. As matter of fact also funds must be held to have been received from partner through firm. 20. It will be noticed that findings given by us have deviated from prayers made by assessee. assessee had all along been submitting that creditor is firm. We have not accepted that submission but have substituted another creditor in firm's place. In our opinion, it is open for Tribunal to do so. assessee's prayer in grounds of appeal is only one. He wants deduction under s. 80V. Who is creditor is matter of details. It is open for Tribunal to arrive at different finding than what was submitted at time of hearing. 21. above finding is also supported by assessments of firm and partners. interest paid by assessee to firm is income of firm, in allocation of profits, however, 50 per cent of profit gets allocated to assessee. It would be seen, therefore, that although initially assessee is debited to full extent of interest. In actual fact, assessee is out of pocket only to extent of 50 per cent balance has come back to him by way of share of profit. Therefore, real expenditure of assessee is only 50 per cent of interest debited. This also supports our finding that borrowals are only from co-partner and that could be only to extent of co-partner's interest in partnership firm. Since assessee and partner share profits and losses equally, 50 per cent of interest is really not expenditure at all for assessee. 22. Under these circumstances, we are of opinion that assessee would be entitled to deduction of half amount claimed by him for three years. 23. We may consider some of authorities cited before us. Shri Doshi has cited decision of Punjab & Haryana High Court in case of Pepsu Road Transport Corpn. vs. CIT (1981) 23 CTR (P&H) 19 : (1981) 130 ITR 18 (P&H). This case is not dealing between partner and firm and, therefore, it has no relevance on issue before us. No doubt, case deals with term 'capital borrowed' and had considered contract between statutory corporation and State Government. We have already quoted Supreme Court decision for purpose of understanding expression 'borrowed monies'. decision cited, therefore, need not be considered in detail. 24. Shri Doshi has also made reference to s. 11 of Partnership Act. This section merely states that partners may determine their rights and duties for contract. This is also not very relevant. Neither is cl. 9 of partnership deed very relevant. We also reject submission made by him that it is not open for income-tax authorities and, consequently, for Tribunal to go into issue whether there is borrowal at all on ground that CIT in his order under s. 264 of Act has already upheld so. We agree with CIT(A) in his findings on this point. 25. We will now consider objection of Department. In paras 18 and 19 of this order, we have given finding that creditor is co-partner. objection is that co-partner's accounts have not been scrutinised. If co- partner has also debit balance, then he cannot be considered to be creditor of assessee. We agree that decision given by us is based only on legal principle laid down by Supreme Court. We have not called for and verified whether co-partner has credit balance or debit balance. Let us assume that co-partner has only debit balance. question would still be from where funds have come, which had been used by assessee for payment of taxes. In case co-partners have got credit balances, to that extent funds have come from them. In case they have no credit balances, then funds have come from creditors of firm. firm is under those circumstances used as pipe to provide funds to partners. decision given by us that assessee is entitled to deduction does not require to be altered. money does not belong to assessee and, therefore, he have borrowed same. If there are no funds with partners, then monies have come from creditors of firm through media of firm. In any case, assessee would be entitled to deduction under s. 80V. 26. In result, appeals are partly allowed. *** D.M. GHIA v. INCOME TAX OFFICER