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TMI Blog1982 (6) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... de gamut. The learned departmental representative also very ably replied the contentions of Shri Shah. However, in order to proceed further it may be necessary to state the facts which are in brief. 3. The assessee is a limited company carrying on business in manufacturing textiles in Ahmedabad. The assessee paid interest under section 220(2) of the Income-tax Act, 1961 ("the Act") in the assessment year 1977-78 which is the year under appeal (accounting year of the assessee being calendar year). The details of such interest are as follows: DETAILS OF INTEREST PAID TO INCOME-TAX DEPARTMENT UNDER SECTION 220(2) I Assessment year 1973-74 [Order dated 1-1 1-1976] Rs. Rs. i. On Rs. 12,00,477 from 12-12-1975 to 5-7-1975 79,379 ii. On Rs. 24,254 from 27-2-1975 to 5-7-1975 968 --------------- 80,347 iii. On Rs. 13,951 from 12-12-1974 to 24-5-1976 2,310 82,657 II Assessment year 1974-75 [Order dated 1-11-1976] i. On Rs. 5,63,967 from 27-2-1975 to 5-7-1975 22,556 ii. On Rs. 2,59,398 from 27-2-1975 to 24-5-1976 36,303 58,859 ---------------- Total 1,41,516 ---------------- The assessee claimed the interest amount of Rs. 1,41,516 as a deduction from income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dentical claim. That was the case dealing with the claim of interest on delayed payment of tax. Their Lordships rejected the assessee's claim and made the following observations: "It cannot be said that the interest on payment of delayed tax has any connection with the business of the assessee, within the four corners of the aforesaid test. The assessee paid interest in order to get adjustment from the department to pay the income-tax by instalments, and this has nothing to do with his business activity. The liability to tax, though arising out of business activity, cannot be said to be in any manner a liability which has anything to do with the business of the assessee. It is merely a consequence of income accruing in such business and nothing more. We do not agree with the observations of the Tribunal that the treatment of interest earned on refund of tax, as income of the taxpayer, has anything to do with interest which an assessee incurs in order to raise money to discharge his income-tax liability. This interest will derive its colour from the principal payment and will partake of it. The interest earned by the department is interest on tax and must be held to be part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 'persona' itself. Even as regards other traders, that part of tax which falls on what is used exclusively for trade could be really ascribed only to a trading character. To the extent it is a tax on property used for earning profits, it must enter into a computation of profits from trading." These observations have been made, in our opinion, to strengthen the argument as the subsequent sentence clearly show that even in regard to other traders the claim has been considered by his Lordship. We, therefore, do not see any principle in deciding the matter on the status of a person, viz., whether it is a corporate entity or a non-corporate entity. Secondly, the decisions which dealt with payment of interest on borrowed capital both dealt with corporate and non-corporate bodies. We need not dilate much on those decisions which dealt with the claim of interest paid on money borrowed for the payment of tax, as the claim was made in those cases on the basis of section 36(1)(iii). Thirdly, the cases which are directly on the point, as pointed out by us, are both of limited companies. 9. Now comes the consideration of the argument of Shri Shah based on the observations of the Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense) of the assessee, and (c) it must have been laid out or expended wholly and exclusively for the purpose of his business. It cannot be disputed that the expression 'for the purpose of business' occurring in section 10(2)(iii) and also in section 10(2)(xv) is wider in scope than the expression 'for the purpose of earning income, profits or gains' occurring in section 12(2) of the Act, and, therefore, the scope for allowing a deduction under section 10(2)(iii) or section 10(2)(xv) would be much wider that the one available under section 12(2) of the Act. This court in the case of CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC) has explained that the former expression occurring in sections 10(2)(iii) and 10(2)(xv), its range being wide, may take in not only the day-to-day running of a business but also the rationalisation of its administration and modernisation of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for the carrying o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its liability to tax which result in more funds being left for the purpose of carrying on the business there is always a possibility of higher profits. To give an illustration, if an assessee can, by an appropriate proceeding, succeed in getting its tax liability for gains and profits reduced by a sum of Rs. 1,00,000 that amount will essentially become available for the purpose of business with a reasonable expectation of more profits. As was observed by Viscount Simon in Smith's Potato Estates case [1948] AC 508 if the trader considers that the revenue seeks to take too large a share and to leave him with too little the expenditure which the trader incurred in endeavouring to correct this mistake is a disbursement laid out for the purposes of his trade. If he succeeds he will have more money with which to earn profits next year." 13. Shri Shah, for the assessee, laid emphasis on the observation that any step taken for reducing the tax liability which results in more funds for the purpose of carrying on business would be for business. He wants that in this case the same principle would apply inasmuch as the assessee by not paying tax retained the money and thereby reduced its tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and the Government. In the Bombay High Court case, the very property that produced that income was in jeopardy and in order to preserve that property, the expenditure was incurred. It is like incurring the expenditure in connection with a business asset. This approach is in line with the decision of the Supreme Court in the case of Indian Aluminium where their Lordships held that wealth-tax is an allowable deduction from out of the business income. It is true that the Legislature amended the law by specifically mentioning that wealth-tax is not deductible. Incidentally, we may note here that section 40 of the Act specifically debars the deduction of income-tax. Even otherwise, income-tax was never allowable as a deduction inasmuch as it arises after the profits are earned. It is like giving a share out of the profits to the State. Thus, we find that none of the decisions cited by Mr. Shah ran contrary to what has been held by us above and particularly the decision of the Punjab and Haryana High Court in the case of Oriental Carpet and Calcutta High Court in the case of National Engg., dealing directly with the question involved in the present appeal. Before we conclude, we w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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