9911796707
TMI Blog1988 (11) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... e Incometax Act, 1961 ? " The assessee is a private limited company. The proceedings relate to the assessment year 1972-73. The business of the assessee is in real estate and money-lending. Both the businesses are carried on with common funds. During the previous year, the assessee earned a sum of Rs. 43,867 by way of interest in its money-lending business. It paid a sum of Rs. 15,852.67 by way of interest in the said business. The payment included a sum of Rs. 15,237 being interest paid to the Income-tax Department for allowing the assessee to make payment of its taxes in instalments. The claim for deduction of this amount, i.e., Rs. 15,237, was rejected by the Income-tax Officer observing : "Interest on income-tax paid being penal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions relied upon by the Appellate Assistant Commissioner, viz., Bat Bhuriben Lallubhai v. CIT [1956] 29 ITR 543 and Mannalal Ratanlal v. CIT [1965] 58 ITR 84 (Cal) were distinguishable inasmuch as the assessees in those cases were not carrying on money-lending business whereas, in the present case, the assessee was carrying on money-lending business. Shri Jetley, learned counsel for the Department, submitted that the Tribunal was not justified in distinguishing this court's decision in Bai Bhuriben Lallubhai v. CIT [1956] 29 ITR 543 and the Calcutta High Court decision in Mannalal Ratanlal v. CIT [1965] 58 ITR 84. He invited our attention to a recent decision of this court in the case of CIT v. Shree Changdeo Sugar Mills Ltd. [1983] 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H. Maharani Shri Vijaykuverba Saheb of Morvi [1975] 100 ITR 67, learned counsel submitted that this court had, in the above decision, relying on this court's earlier decision reported in Bai Bhuriben Lallubhai v. CIT [1956] 29 ITR 543, held that payment of interest on borrowings for the purpose of discharging the estate duty liability was an allowable deduction. In particular, he took us through the observations of this court in that case in the first paragraph on page 76 which read : "Now, applying this ratio to the facts of the instant case before us, it seems to us clear that the assessee in this case also had no other option except to incur expenditure in order to make the earning of an income possible and that the exercise of the opt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of the Act would not be whether the liability that was to be discharged was a personal liability or not but whether the expenditure in the shape of interest that was incurred had any direct or indirect connection with the earning of the income, which expression would include maintaining the income or preserving the income at the old rate. Since, on the facts of this case, it is clear that the borrowings were made by the trustees avowedly for the purpose of meeting the estate duty liability which attached to the property which was the subject-matter of the trust and that too for the purpose of maintaining or preserving the erstwhile income that was being received from the corpus of the said trust, in our view, the nexus between the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the head "Profits and gains of business or profession". No doubt one such type of income is the profits and gains of business which was carried on by the assessee during the previous year and the expression "Profits and gains" has not been defined. All the same, having regard to the fact that sections 30 to 37 provide for deductions in respect of certain types of expenses some of which in reality are or may be taken into account by a businessman at the stage of arriving at the figure of profits and gains himself, it is difficult to accept, as a bald proposition of law, that all expenses which a businessman takes care of at the time of arriving at the figure of profits and gains should be treated as allowed under section 28 irrespective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6] 29 ITR 543, income-tax is a personal liability. The interest paid thereon or in connection therewith will be a personal liability except in exceptional cases like CIT v. Maharani Shri Vijaykuverba Saheb of Morvi (H. H) [1975] 100 ITR 67 (Bom) and CIT v. Kishinchand Chellaram [1977] 109 ITR 569 (Bom). Therefore, assuming that the liability to interest in dispute was incurred wholly and exclusively for the purpose of the money-lending business, the expenditure being of personal nature, it cannot be allowed as deduction. The fact that section 80V was introduced for this purpose and the provisions were later on deleted are not material for the purpose of considering the issue before us. The latest decision of this court on the issue is the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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