TMI Blog1959 (7) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction and on appeal the order of the Income- tax Officer was affirmed by the Appellate Assistant Commissioner. The assessee took the matter on appeal to the Income-tax Appellate Tribunal. The appeal was dismissed by the appellate Tribunal on the ground that the interest paid for borrowing money for the purpose of meeting tax liability cannot be a legitimate deduction. In these circumstances the income-tax Appellate Tribunal has submitted the following question of law for the determination of this High Court: Whether the interest paid by the assessee on money borrowed for paying tax under section 18A of the Indian Income-tax Act is an allowable deduction? On behalf of the assessee learned counsel put forward the argument that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a business expenditure. The reason is that income-tax is not a deduction before you arrive at the net profits of the assessee. It is said in an English case that income-tax represents the Crown's share of the profits . It is not an expenditure for the purpose of earning profits. It is, on the contrary, a case of application of profits after they have been earned and not expenditure necessary to earn such profits. That is the principle laid down by the House of Lords in Ashton Gas Co. v. Attorney-General [1906] A.C. 10 and at page 12 the Lord Chancellor states in the course of his speech as follows: My Lords, so presented the case appears to me to be perfectly clear. The fallacy has been in arguing as if you can deduct from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of any cess, rate or tax levied on the profits or gains of any business, profession or vocation or assessed at a proportion of or otherwise on the basis of any such profits or gains;.... In view of the statutory provisions it follows as a necessary corollary that a deduction of interest on money borrowed for payment of tax is not a legitimate deduction, and the claim put forward on behalf of the assessee for deducting such interest cannot be allowed. There is also another point of view from which the question can be approached. It is true that under sub-section (5) of section 18A of the Income-tax Act the Central Government is bound to pay simple interest at two per cent. per annum on any amount payable before the 1st of April ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of such inclusions bears to his total income or, in cases where under the provisions of sub-section (1) of section 17 both income-tax and super-tax or super-tax are chargeable with reference to the total world income, shall bear to the total amount of income-tax and super-tax which would have been payable on his total world income of the said previous year had it been his total income the same proportion as the amount of such inclusions bears to his total world income... It is manifest that the receipt of interest by the assessee under section 18A, sub-section (5), is purely incidental. I am satisfied that the borrowing of money by the assessee for the payment of an advance tax was not made for any purpose of commercial expediency bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was held by Chagla, C.J., that the purpose for which the assessee borrowed money had no connection, whether direct or indirect, with the income which she earned from the fixed deposit and that she was not entitled to the deduction claimed under section 12(2). It might be that the assessee's motive was to save her fixed deposit and interest and to meet household expenses, etc., by means of a loan borrowed, but that consideration was entirely irrelevant. Even as regards advance payment of tax the purpose of borrowing the money in order to pay advance tax was to discharge the statutory obligation upon the assessee, that receipt of interest on that tax was purely incidental and, therefore, the assessee could not claim the deduction on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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