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TMI Blog1978 (3) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Officer rejected the assessee's claim. On further appeal, the Appellate Assistant Commissioner took the view that the purpose of the borrowing, on which interest was paid, was payment of taxes and not investment and, therefore, the assessee was not entitled to any deduction. It was also urged before the Appellate Assistant Commissioner that a part of such interest paid was attributable to loans raised for payment of annuity deposit by the assessee and such interest should be allowed as an expenditure under section 57 of the Income-tax Act, 1961. The Appllate Assistant Commissioner held that an annuity deposit did not possess the characteristics of income assessable under the head " Other sources " and, therefore, no deduction was per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not an allowable deduction in computing the total income of the assessee ? " Dr. Debi Pal, learned counsel for the assessee, placed before us a Circular No. C.B.R. D.O. C.No. 4(86)--I.T./49 dated the 4th February, 1950, where it has been directed that where deduction for interest on loans was claimed against business profits, the fact that the borrowed money was immediately utilised for payment of tax would not necessarily negative the claim. Drawing inspiration from this circular, Dr. Pal contended that whatever be the decision of this court in the case of Mannalal Ratanlal [1965] 58 ITR 84 (Cal), the revenue ought to have allowed the deduction claimed on the basis of the same. It appears to us, however, that this circular has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such deposits was prescribed on the basis of percentages from 5 to 12 1/2 of the adjusted total income of the assessee. This adjusted total income meant total income computed under the Income-tax Art without making allowance for annuity deposit. Option was given to taxpayers to make such deposit or not, but, once exercised, such option was irrevocable. The deposit, if paid, was admissible as a deduction in computing the assessee's total income charged to tax for that year. If the taxpayer opted not to make the deposit he had to pay an additional tax. Under sub-clause (viii) of section 2(24) of the Income-tax Act, 1961 " ' Income ' includes-- (viii) any annuity due, or commuted value of any annuity paid, under the provisions of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deductions under section 57 of the Income-tax Act, 1961, in respect of such deposits. The relevant part of the section is as follows : " 57. Deductions.--The income chargeable under the head 'Income from other sources' shall be computed after making the following deductions, namely :--... (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income. From sections 2(24) and 57 of the Act, it appears that when the annuity deposit is received back by the assessee in instalments the same are to be taxed as income from other sources in the year of receipt, though originally the said income might have arisen to the assessee under a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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