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TMI Blog2013 (12) TMI 1003X X X X Extracts X X X X X X X X Extracts X X X X ..... ed deposit outside the books of account and paid interest. The ld.DR submitted that as per Kerala Money Lenders' Act the deposit shall be accepted only as per the provisions of RBI Act at the rate fixed by RBI for non banking financial institution. Private money lenders are prohibited from accepting deposits from public. Referring to Explanation to section 37(1), the ld.DR submitted that any expenditure incurred by a taxpayer for any purpose which is an offence or prohibited by law shall not be deemed to have been incurred for the purpose of business or profession. The ld.DR further submitted that the taxpayer has accepted the deposit in violation of the provisions of RBI Act and paid interest in violation of Explanation to section 37(1). T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claimed in the statement of net income. Referring to Explanation to section 37(1), the ld.senior counsel submitted that Explanation was introduced by Finance (No.2) Act, 1998. In the Explanatory Note on the provisions of Finance (No.2) Act of 1998 it was clarified that section 37(1) was amended to disallow the expenditure incurred by a taxpayer for any purpose which is an offence or which is prohibited by law. The Explanatory Note further states that the amendment made in section 37(1) would result in rejecting the claim made by certain taxpayer in respect of payment on account of protection money, extortion, hafta, bribe, etc. According to the ld.senior counsel, the payment of interest in personal capacity is not in the nature of protect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains of business or profession". Explanation.- For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have ben incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." A bare reading of section 37(1) clearly shows that any expenditure which is not in the nature described u/ss 30 to 36 and not being capital expenditure or personal expenditure laid out wholly and exclusively for the purpose of business has to be allowed in computing the total income. Therefore, it is obvious that the expenditure which falls under section 30 to 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ambits of sections 30 to 36. No doubt, section 37(1) is not applicable in respect of expenditure which falls within sections 30 to 36 of the Act. In this case, the taxpayer admittedly borrowed funds for enhancing the working capital for the purpose of money lending business. Interest on capital borrowed for the purpose of business falls within the provisions of section 36(1)(iii) of the Act. Therefore, any interest paid on the capital borrowed for the purpose of business or profession has to be allowed as deduction u/s 36(1)(iii) of the Act. In view of the above, provisions of section 37(1) may not be applicable in respect of interest on the capital borrowed for business purpose. Apart from this, the taxpayer claims that the funds were borr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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