1992 (3) TMI 42 - HC - Income Tax

Summary

Issues:
- Interpretation of section 80V of the Income-tax Act, 1961 regarding deduction of interest on borrowed capital for tax payment.
- Whether interest on borrowings made in previous years for tax payment, but remaining unpaid, can be allowed as a deduction under section 80V.

Analysis:
The judgment by the High Court of Rajasthan involved a question of law referred by the Income-tax Appellate Tribunal regarding the interpretation of section 80V of the Income-tax Act, 1961. The court considered two assessment years, 1978-79 and 1979-80, to determine the allowance of interest on borrowed capital for tax payments. The case involved disallowance of interest on borrowed capital for previous years before 1978-79. The Income-tax Officer disallowed the interest, but the Commissioner of Income-tax (Appeals) revised the figure for payment of taxes, increasing the allowable interest. The Tribunal concluded that interest on borrowings made during the accounting period relevant to 1978-79 had already been allowed, emphasizing that interest for tax payment in the relevant previous year should be deductible, not for earlier years.

In analyzing the provisions of section 80V, the court emphasized that the deduction of interest paid in the previous year on borrowed money for tax payment is allowable. The court addressed the question of whether interest on borrowings made in previous years for tax payment, but still outstanding, can be disallowed. The Tribunal's view was that interest on borrowings made during the year is the only permissible deduction, not on balances from earlier years. However, the court held that as long as the borrowed money is outstanding from previous years and interest is paid during the relevant previous year, it should be allowed as a deduction under section 80V.

Based on the interpretation of section 80V, the court ruled in favor of the assessee and against the Revenue, stating that interest actually paid during the relevant assessment years on borrowings from previous years utilized for tax payments and outstanding on the first day of the accounting year will be eligible for deduction under section 80V. The judgment clarified that as long as the borrowed money is used for tax payment and interest is paid, it should be allowed as a deduction, even if the borrowing was from previous years. The court made no order as to costs in this matter.