( 1 ) AS both these appeals involve common facts, they have been heard together and are disposed of by this common judgement and order. The dispute between the parties centres round taxability of interest income in hands of the individual assessee and corresponding deduction of liability in hands of the company. The Assessment Year is 1995-1996 and the relevant accounting period is Financial Year 1994-1995 i. e. year ended on 31st March, 1995. The assessment year and the accounting period are same for the individual assessee as well as the company. TAX APPEAL NO. 157 OF 2000

( 2 ) THE following substantial question of law has been formulated at the time of admission of the appeal on 27th September, 2000:"whether, in the facts and circumstances of the case, the ITAT was right in law in holding that the assessee was not entitled to the deduction of interest paid by it on the debentures issued by it ?"

( 3 ) IN this Tax Appeal the payer company is the appellant. The payer company while filing its return of income claimed deduction of the total amount of interest paid on the ground that the interest paid was a revenue expenditure and could not be disallowed as the same was paid by way of rent for use of capital. It was further contended that deduction of interest under Section 36 (1) (iii) of the Income-tax Act, 1961 (the Act) only required that interest is paid in respect of capital borrowed for the purposes of business of the borrower. That the payer company had in fact satisfied the requirements of the said provision and once payment had been made there was no question of disallowing the interest. Reliance was also placed on the provisions of Section 43 (2) of the Act which define the term paid. The Assessing Officer did not accept the contentions of the payer company and held that interest payment Rs. 62/- per debenture payable up front on the date of allotment was nothing but advance payment for the entire period of six years and that interest @ Rs. 62/- per debenture having face value of Rs. 100/- could not be interest for a period of seven days of the accounting period. He, therefore, held that the payer company cannot state that the entire interest was paid on the date of allotment and for the remaining period of the loan, namely, for a period of six years the borrowing was interest free. Accordingly, the claim of deduction of interest paid on debenture was proportionately allowed to the extent of Rs. 84,224/- and balance of Rs. 2,62,65,776/was disallowed.

( 4 ) THE assessee i. e. the payer company carried the matter in appeal but did not succeed. According to CIT (Appeals) the ratio laid down by the Apex Court in the case of Madras Industrial Investment Corporation Limited (supra) squarely applied to the case of the payer company and the Assessing Officer was justified in allowing deduction of only proportionate amount of interest.

( 5 ) THE payer companies, four in all, carried the matter before Tribunal but the Tribunal, after setting out the facts and contentions of the parties, held that the facts of the case were similar to the facts of the case before the Apex Court in case of Madras Industrial Investment Corporation Limited (supra) and, accordingly, the orders made by the Assessing Officer and CIT (Appeals) were upheld.

( 6 ) MR. S. N. SOPARKAR, learned Senior Advocate appearing on behalf of the appellant, submitted that the payer company had claimed deduction under provision of Section 36 (1) (iii) of the Act. The Apex Court decision in case of Madras Industrial Investment Corporation Limited (supra) was based on the footing that the controversy was under the provision of Section 37 of the Act and, therefore, according to Mr. Soparkar, the said decision had no application on facts of the case. Referring to definition of the term paid he submitted that paid means actually paid or incurred according to method of accounting upon the basis of which profits and gains are computed under the head profits an