TMI Blog1999 (10) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee without interest. The assessee was asked to show cause why the interest relatable to the aforesaid advances should not be disallowed since such advances were given without interest out of the overdraft account with the Bank. In response to this show-cause notice, it was explained that all the receipts by the way of interest paid advances from the flat purchasers and loans from the unsecured creditors were deposited in the aforesaid account and it was out of the such amount that the said interest paid advances were given to sister concerns. Hence, it could not be said that the advances were given out of borrowed amounts bearing interest. However, this explanation was rejected by the Assessing Officer by observing that advance receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 219/[1981] 7 Taxman 188 which was followed by that Court in various other cases as Reckitt Colman of India Ltd. v. CIT [1982] 135 ITR 698/ 10 Taxman 189 (Cal.), Alkali Chemical Corpn. of India Ltd. v. CIT [1986] 161 ITR 820/28 Taxman 423 (Cal.), Indian Explosives Ltd. v. CIT [1984] 147 ITR 392/[1983] 15 Taxman 232 (Cal.) and British Paints (India) Ltd. v. CIT [1991] 190 ITR 196 (Cal.). He then drew our attention to the Supreme Court judgment in the case of East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627/91 Taxman 185 (SC) wherein similar contention of the assessee was found having considerable force. He also relied on the decision of the Tribunal in the case of Durametallic (India) Ltd. v. IAC [1991] 38 ITD 211 (Mad.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court on the ground that payment of advance tax was connected with carrying on the business. Further, the decision of Supreme Court in the case of Madhav Prasad Jatia was not cited before the Calcutta High Court. In respect to the Supreme Court judgment as East India Pharmaceutical Works Ltd.'s case it was argued by him that such contention of the assessee though found having considerable force, the Supreme Court did not decide the issue since such contention was not raised either before the Tribunal or High Court. Hence, it was prayed that order of CIT(A) be upheld. 5. Rival submissions of the parties and the material placed before me have been considered carefully. In my opinion, there is considerable force in the submission raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt accepting the contention of the assessee held as under:--- "That on the facts of the case, the profits were sufficient to meet the advance tax liability. The entire profits were deposited in the overdraft account. It should be presumed that in its essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business. Therefore, the interest amounting to Rs. 6,769 paid by the assessee on the bank overdraft account which was disallowed as being relatable to payment of advance tax should also have been allowed as an admissible deduction in the computation of the assessee's business income." 6. In the case before Madras Bench of the Tribunal Durametalli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. In these circumstances, we hold that the CIT(A) has rightly approved the matter from the businessman's point of view. The disallowance, therefore, in our view, is rightly deleted in the facts and circumstances of the case, In the result, we do not find any reason to interfere with the finding of the CIT(A). We uphold his order on this point." 7. It would be now useful to refer to the decision of the Hon'ble Supreme Court in the case of East India Pharmaceutical Works Ltd. In this case, the assessee has paid certain amounts of advance tax out of its overdraft account and claimed interest paid on such account as business expenditure under section 37. The claim was rejected on the ground that amount of income-tax paid was not an expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional papers produced by the appellant for answering the question." 8. The aforesaid observations of the Hon'ble Supreme Court clearly upholds the contention of the assessee though it was not entertained on the ground that it was not taken before the Tribunal and High Court. It impliedly shows that such contention would have been allowed had it been raised before the Tribunal and High Court. The case was decided against the assessee on the ground that payment of income-tax did not amount to business expenditure in view of earlier Supreme Court judgments in the case of Madhav Prasad Jatia's case and Smt. Padmavati Jai Krishna v. Addl. CIT [1987] 166 ITR 176/32 Taxman 32-I. In view of the above judgment of the Supreme Court and other de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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