eview Petition Nos
597 to 60 1 of 1987
IN CA Nos 319579 4731 3284 SLP No 1010880 and CANo 79384
818 WITH CA Nos 1313  38881 SLPNo
3680 WP No 19277 SLP No 404 181 and CA No 226980
AK Ganguli K Swamy and P Parmeshwaran for the Petitioners
FS Nariman Anil B Diwan RK Lukose KR Nambir AN Haksar DN Mishra and PK Ram for the Respondent
The Order of the Court was delivered by PATHAK CJ
After hearing learned counsel for the parties briefly we are satisfied that the judgment and order dated 20 December 1986 of which review is sought should be recalled and the cases be heard again on the merits
It appears to us prima facie that in respect of certain items an inconsistency is present in the impugned judgment when regard is had to the law laid down by this Court in Union of India vs Bombay Tyres International Ltd  Inasmuch as the cases are being re opened we refrain from expressing any opinion at this stage on the merits of the points raised in the cases
Objection was taken by the respondent manufacturers to the Review Petitions on the ground that the finality of the judgment should be maintained and should not be disturbed lightly
In our opinion the points raised by the petitioners are of substantial public importance and therefore call for recon sideration
Accordingly we allow the Review Petitions and recall the judgment and order dated 20 December 1986 and restore the cases to their original number and direct that they be listed again for fresh consideration
There is no order as to costs
NP V Petitions allowed


Summary:
The respondent assessee is a co operative society run ning a sugar mill
With a view to inducing its members to make further contribution to its capital it incorporated a bye law which provided for the establishment of a Loss Equalisation  Capital Redemption Reserve Fund 
Every producer shareholder was required to deposit every year an amount to this fund which was to be utilised for the purpose of making the partly paid shares fully paid and after defraying the loan taken from the Industrial Finance Corpo ration the balance was to be refunded to the members
The money available in the Fund was utilised by the society for the purpose of its business
A part of the amount was even tually utilised for converting the partly paid shares into fully paid shares
It was then decided by the society to pay interest on the balance available in the Fund
The interest thus paid to its members was sought to be claimed as deduc tion in computing the income of the assessee
The Income Tax Officer rejected the claim holding that the amount did not represent loans taken by the assessee or capital borrowed for the purpose of its business
The Appel late Assistant Commissioner confirmed the disallowance
The Income Tax Appellate Tribunal accepted the second appeal of the assessee and held that it was not necessary that borrow ing must contain an element of payment of interest and that even if a deposit was made by the members of the society which waS utilised for the purpose of the business of the assessee the funds represented by such deposit would be capital borrowed  for the purpose of section 361iii of the Income Tax Act 1961
The High Court agreed with the view taken by the Appellate Tribunal and answered the questions referred to it in favour of the assessee and against the Revenue
While allowing the appeals and answering the questions in the negative in favour of the Revenue this Court
841 HELD 1 Section 361iii of the Income Tax Act 1961 provides that in computing the income chargeable under the head profits and gains of business or profession  a deduc tion shall be allowed of the amount of interest paid in respect of capital borrowed for the purposes of the business or profession
845GH 2 The words borrowed money  should not be given a strained meaning and it should be considered whether in ordinary commercial usage the relationship was that of a borrower and lender and the transactions were loan transac tions
To constitute borrowed money there must be a real borrowing and a real lending
846BD 3 It is apparent that the deposits made by the members cannot be regarded as loans advanced by the members to the assessee
There was never any intention between the assessee and its members to treat the deposits made by the members as loans and that the relationship between the assessee and the members should be that of borrower and lender
 847FG Port of London Authority vs Commissioner of Inland Revenue  Commissioner of Inland Reve nue vs Port of London Authority  Inland Revenue Commissioner vs Rowntree  Co Ltd  Commissioner of Income tax Gujarat vs Rajkot Seeds Oil  Bullion Merchants Association Ltd  Commissioner of Excess Profits Tax Central Calcut ta vs Bhartia Electric Steel Co Ltd  Bombay Steam Navigation Co 1953 Private Ltd vs Commis sioner of Income tax Bombay and Madhav Prasad Jatia vs Commissioner of Income tax Uttar Pradesh   referred to
4 A loan necessarily supposes a return of the money loaned
The circumstance that there was no certainty that any balance would remain for refund to the members would in itself indicate that the deposits could not be regarded as loans
847GH