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Interpretation of section 80V of the Income-tax Act for deduction of interest on borrowed money for tax payment. Analysis: The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding the allowability of interest under section 80V of the Act on moneys borrowed by the assessee for the assessment years 1977-78, 1978-79, and 1979-80. The controversy centered around whether the interest paid by the assessee on loans borrowed for repayment of interest-free loans obtained earlier for payment of income tax was eligible for deduction under section 80V. The Income-tax Officer, Commissioner of Income-tax (Appeals), and the Tribunal had rejected the assessee's claim for deduction based on the argument that the interest claimed was not on money borrowed for payment of tax due under the Act. The assessee contended that the interest paid on loans borrowed for repayment of earlier interest-free loans taken for income tax payment should be allowed as a deduction under section 80V. However, the court analyzed the provision of section 80V, which allows deduction of interest on money borrowed for payment of tax due under the Act. The court noted that the section aims to encourage taxpayers to pay taxes promptly even by borrowing, and the benefit is not applicable to interest paid on loans borrowed for repaying earlier interest-free loans for tax payment. The court emphasized that the deduction under section 80V is specifically for interest paid on money borrowed for the payment of tax due under the Act. In this case, the loans obtained by the assessee during the relevant years for repayment of old interest-free loans were not for tax payment but for settling existing liabilities. Therefore, the interest paid on such loans did not fall within the scope of section 80V. The court agreed with the Tribunal's decision and ruled against the assessee, stating that the interest paid on borrowed money for repayment of interest-free loans taken earlier for income tax payment was not eligible for deduction under section 80V. In conclusion, the court answered the referred question in the negative, favoring the Revenue. The judgment clarified that section 80V allows deduction only for interest paid on money borrowed for the payment of tax due under the Act and does not cover interest paid on loans taken for repaying earlier interest-free loans. The reference was disposed of with no order as to costs.
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