1976 (11) TMI 46 - HC - Income Tax

Summary

Issues involved:
The judgment involves the question of whether the payment of interest on amounts utilized from an overdraft for tax payments is allowable as a deduction in computing the total income of the assessee.

Details of the Judgment:

The Income-tax Officer found that a portion of the amount drawn from the overdraft account was used for tax payments. Due to the difficulty in ascertaining the exact utilization of funds, he estimated that 15% of the total taxes paid during the year were from the overdraft. Consequently, he disallowed the proportionate interest on the overdraft used for tax payments as deductible expenditure.

The Appellate Tribunal, referring to a previous court decision, held that payment of income tax is not considered part of an assessee's expenditure, and therefore, interest paid on borrowed sums for tax payments is not deductible. The Tribunal disallowed the interest amount claimed by the assessee.

The assessee argued that the expression "for the purpose of business" in the Income-tax Act is broader than "for the purpose of making or earning profit." They contended that tax payments are closely linked to business operations and are incidental to business activities. Additionally, they argued that interest paid on borrowed funds for advance tax payments should be deductible under relevant sections of the Act.

The court, considering previous decisions and the introduction of section 80V in the Act, concluded that while the interest claimed may now be allowed, it could not be allowed under the law as it stood at the relevant time. The court upheld the Tribunal's decision, stating that the interest on borrowed funds for tax payments is not deductible.

In conclusion, the court answered the referred question in the negative, indicating that the interest on amounts utilized from the overdraft for tax payments was not allowable as a deduction in computing the assessee's total income. No costs were awarded in the matter.

Separate Judgment by Judge DEB:
Judge DEB concurred with the Chief Justice's decision, agreeing that the interest on borrowed funds for tax payments is not deductible under the relevant provisions of the Income-tax Act.