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Deduction of interest paid by the assessee on money borrowed for paying tax under section 18A of the Indian Income-tax Act. Analysis: For the assessment year 1951-52, the assessee claimed that interest paid on overdrafts taken for advance payment of income tax should be allowed as an expense. The Income-tax Officer and the Appellate Assistant Commissioner denied the deduction, which led to an appeal to the Income-tax Appellate Tribunal. The Tribunal dismissed the appeal, questioning the allowance of interest paid for borrowing money to meet tax liability. The High Court was tasked with determining whether such interest was a legitimate deduction. The assessee argued that since interest received on advance tax was taxable income, interest paid for borrowing should be deductible under section 12(2) of the Income-tax Act. However, the court disagreed, emphasizing that income tax is not a business expenditure but a deduction from profits after they are earned, citing legal precedents like Ashton Gas Co. v. Attorney-General and Allen v. Farquharson Brothers and Company to support its stance. The court further clarified that the purpose of making advance tax payments under section 18A was to fulfill statutory obligations, not to earn interest. Therefore, interest paid on borrowed money for tax payments cannot be considered a legitimate deduction under section 12(2) of the Income-tax Act. The court referenced the Bombay High Court's decision in Aruna Mills Ltd. v. Commissioner of Incometax, emphasizing that interest payable for underestimating tax liability and interest received from the government under section 18A(5) do not arise from the same transaction and cannot be offset. The court also highlighted rulings in cases like Bai Bhuriben Lallubhai v. Commissioner of Income-tax and Maharajadhiraj Sir Kameshwar Singh v. Commissioner of Income-tax, where similar deductions were disallowed based on lack of direct or indirect connection between borrowed funds and income earned. In conclusion, the High Court held that the assessee was not entitled to deduct interest paid on borrowed money for advance income tax under section 18A. The court ruled in favor of the Income-tax Department, emphasizing that such interest payments did not qualify as legitimate deductions. The judgment was concurred by Kanhaiya Singh, J.
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