1959 (12) TMI 40 - HC - Income Tax

Summary

Issues:
Allowability of deduction under section 10(2)(iii)
Allowability of deduction under section 10(2)(xv)
Allowability of deduction under section 10(1) as a trading loss

The judgment involves the issue of the allowability of a deduction claimed by the assessee under section 10(2)(iii) of the Indian Income-tax Act. The assessee had paid interest under section 18A(6) due to underpayment of advance tax. The court held that the deduction was not allowable under this section as the interest paid was not in respect of any capital borrowed by the assessee. The court reasoned that the assessee retained its own capital by paying a lesser amount of tax based on its own estimate, and this capital was not borrowed by the assessee.

Another issue in the judgment pertains to the allowability of the deduction under section 10(2)(xv) of the Income-tax Act. The court rejected this contention as well, stating that the interest paid under section 18A(6) was a statutory obligation arising from the assessee's choice to pay less than eighty percent of the tax determined on regular assessment. The court emphasized that this obligation was incidental to the assessee's character as a taxpayer and not directly related to the profits and gains of the business assessable under section 10.

The judgment also addresses the question of whether the deduction could be allowed under section 10(1) as a trading loss. The court dismissed this argument, ruling that even if the expenditure could be considered a loss, it did not qualify as a trading loss. The court highlighted that the liability for the interest was not incurred in the course of running the business but was a general obligation applicable to all taxpayers, regardless of business activities. The court referenced a previous case to support its decision and concluded that the expenditure was not deductible under section 10(1) for computing the net profits and gains of the business.

In conclusion, the court held that the expenditure incurred by the assessee in paying interest under section 18A(6) was not allowable as a deduction while computing the profits of the business. The court answered the question raised in the negative, denying the assessee's claim for deduction. The Commissioner of Income-tax was awarded costs for the reference.