1991 (9) TMI 97 - AT - Income Tax

Summary

Issues:
- Deduction of interest under section 80V of the Income-tax Act, 1961 for loans taken against fixed deposits for payment of income tax.

Analysis:
The appeal before the Appellate Tribunal ITAT Ahmedabad related to the assessment year 1985-86. The issue revolved around the deduction of interest under section 80V of the Income-tax Act, 1961 for loans taken against fixed deposits for the payment of income tax. The assessee had deposited an amount in fixed deposits and took loans against them, using the loan amount for tax payment. The Income Tax Officer (ITO) rejected the claim, alleging that the assessee arranged affairs to benefit from section 80V, indicating an intention to defraud revenue. The ITO argued that the borrowing was not temporary and did not involve someone else's money, thus not meeting the criteria of section 80V.

The assessee appealed to the Dy. CIT(A) who upheld the deduction, following a previous decision on the matter. The Tribunal considered the provisions of section 80V, emphasizing that for deduction, the assessee must establish payment of interest on borrowed money for tax payment. The Tribunal noted that the borrowing was indeed for tax payment, and the interest was paid in the previous year. The Tribunal rejected the ITO's argument that the arrangement was not borrowing within section 80V, highlighting that the assessee had borrowed money against fixed deposits, establishing a direct nexus between borrowing and tax payment.

The Tribunal emphasized that the assessee had the right to arrange affairs advantageously and that the conditions of section 80V were met in this case. The Tribunal clarified that even though fixed deposits were kept as security, the borrowed money belonged to the lender, making it a borrowing for tax payment. The Tribunal rejected the Department's ground, emphasizing the distinct roles of the assessee as a creditor for fixed deposits and a debtor for loans. Ultimately, the Tribunal dismissed the appeal, affirming the assessee's entitlement to the deduction under section 80V for interest paid on loans taken against fixed deposits for tax payment.