1978 (3) TMI 83 - HC - Income Tax

Summary

Issues:
1. Deductibility of interest paid on borrowings for payment of income tax.
2. Deductibility of interest paid on borrowings for payment of annuity deposit.

Analysis:
1. The case involved the deductibility of interest paid on borrowings for payment of income tax. The Appellate Assistant Commissioner initially rejected the deduction claim, stating that the borrowing was for tax payment, not investment. The Tribunal, following precedent, upheld the decision, denying the deduction. The court referred to previous judgments, including Mannalal Ratanlal, which held that interest paid for income tax borrowings was not deductible. The court also cited Waldies Ltd. v. Commissioner of Income-tax, reiterating that such interest was not allowable before the introduction of section 80V in the Income-tax Act, 1961. Consequently, the court affirmed the Tribunal's decision, denying the deduction for interest paid on borrowings for income tax.

2. The second issue revolved around the deductibility of interest paid on borrowings for annuity deposit. The court examined the provisions related to annuity deposits under Chapter XXII-A of the Income-tax Act, 1961. It highlighted that annuity deposits, when refunded in instalments, are deemed part of the total income in the year of receipt. The court analyzed relevant sections, including section 57, which allows deductions for expenditures laid out for earning such income. It concluded that annuity deposits cannot be equated with other income under "Other sources" and that the scheme primarily aims at tax reduction, not interest earnings. Therefore, the court ruled in favor of the revenue, denying the deduction for interest paid on borrowings for annuity deposit.