1992 (4) TMI 68 - AT - Income Tax

Summary

Issues:
Disallowance of interest paid to M/s. Jeevan Ltd. for wealth-tax payment.

Analysis:
1. The assessee borrowed Rs. 5 lakhs from M/s. Jeevan Ltd. for wealth-tax payment during the relevant year. The assessee earned interest income from various parties and paid interest to those parties, including M/s. Jeevan Ltd. Out of the interest earned, the assessee deducted the interest paid and offered the net interest income for taxation under the head "other sources."
2. The Income Tax Officer (ITO) disallowed Rs. 48,675 out of the claimed deduction of Rs. 74,096, stating that the interest paid on the borrowed amount for wealth-tax payment cannot be allowed as a deduction under the head "other sources." The ITO emphasized that interest can be allowed only if it is paid for earning income under Section 57 of the Income-tax Act.
3. The Commissioner of Income Tax (Appeals) upheld the ITO's decision, citing the Supreme Court's decision in Smt. Padmavati Jaikrishna v. Addl. CIT [1987] 166 ITR 176 to support the disallowance.
4. The assessee appealed to the Tribunal, arguing that there was an indirect link between the interest expenditure and the income earned. The assessee relied on the Supreme Court's observations in Smt. Padmavati Jaikrishna's case and presented a similar case where the matter was remitted back for fresh consideration.
5. The assessee contended that the entire interest paid to M/s. Jeevan Ltd. should be deductible based on the decision in CIT v. H.H. Maharani Shri Vyaykuverba Saheb of Morvi [1975] 100 ITR 67 and other relevant case laws.
6. The department representative opposed the assessee's claim, stating that the Supreme Court's decision in Smt. Padmavati Jaikrishna's case covered the present situation, and there was no need to remit the matter back for reconsideration.
7. The Tribunal analyzed the arguments and held that the interest paid on borrowed funds for wealth-tax payment was a personal liability and not for earning income. Referring to relevant case laws, the Tribunal upheld the disallowance of Rs. 48,675 made by the Income-tax authorities.
8. The Tribunal distinguished the case of H.H. Maharani Shri Vijaykuverba Saheb of Morvi from the present case, emphasizing the direct link between the borrowed money and wealth-tax payment. Consequently, the Tribunal dismissed the appeal, upholding the disallowance of interest paid to M/s. Jeevan Ltd. for wealth-tax payment.