TMI Blog1971 (9) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... edit was given to the account of the institution. At the close of the accounting year, after debiting the aforesaid sum of Rs. 10 lakhs the capital account showed a net credit of Rs. 15,06,920. The amount actually paid by the assessee during the year of account to the institution was only Rs. 5,50,000. The balance of Rs. 4,50,000 was treated as a debt due to the institution and accordingly the assessee was debited with interest thereon. The assessee had an overdraft account with the Central Bank of India, Aligarh. At the beginning of the accounting year, the amount outstanding from the overdraft was Rs. 2,76,965. Further overdrafts were raised during the year, so that at the end of the year the liability of the assessee to the bank stood at Rs. 9,55,460. Among further debits to that account during the year was the aforesaid sum of Rs. 5,50,000 paid to the engineering college on January 7, 1956. In assessment proceedings for the assessment years 1957-58, 1958-59 and 1959-60 the assessee claimed deduction of the interest paid by her to the bank in respect of the aforesaid overdraft account. The assessee contended that she had preferred to draw on the overdraft account of the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistrate to pay that amount for the purpose of charity and the mere entry in the assessee's own account books crediting the trust, which had not yet come into existence, could not amount to a gift or trust for charitable purposes. Thus, the interest credited to the account of the engineering college was also disallowed. Meanwhile, Smt. Indermani Jatia died and her legal heir, Madhav Prasad Jatia, was substituted. The assessee requested the Tribunal to refer the question concerning the deduction of interest on Rs. 4,50,000 for the assessment years 1958-59 and 1959-60 and accordingly the Tribunal has referred the following question : " Whether, in the facts and circumstances of the case, the interest credited by the assessee to the account of Ganga Sagar Jatia Engineering College on the sum of Rs. 4,50,000 and accretion thereto was an admissible deduction for each of the years under reference ? ", that is reference No. 342 of 1964. The assessee also applied for a reference on the point whether the interest on Rs. 5,50,000 was deductible for the assessment years 1957-58 to 1959-60. The Tribunal declined to make the reference. The assessee then applied to this court under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an advance payment of tax. It was explained that the assessee had the option either of taking the money from her income-yielding fixed deposit and thereby reducing the income, or borrowing money and paying interest on it. It was urged that by borrowing the money she thereby preserved the source of her income and, therefore, the interest on the borrowing was an allowable expenditure. The contention was negatived by Chagla C.J., who, speaking for the court, observed : " The court is not concerned with the motive of the assessee and what Mr. Mehta in fact asks us to do is to probe into the motive of the assessee. It may be that the assessee's motive was to save her fixed deposit and interest accruing from it and to purchase the jewellery by means of loan borrowed from some person or other. But that consideration is entirely irrelevant. What we are concerned with is the actual action on the part of the assessee and not of the action she could have taken under the circumstances. If she had chosen to purchase this jewellery by withdrawing money from the fixed deposit, then undoubtedly her income would have been reduced and to that extent the tax on that income would also be reduced. Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingdom for the purpose of paying dividend to the shareholders. The court proceeded on the view that the payment of dividend fell within the meaning of the expression " purpose of the business ". Finally, our attention has been drawn by the assessee to the dictum in Eastern Investments Ltd. v. Commissioner of Income-tax that even if money is expended voluntarily, and not of necessity with a view to an immediate benefit to the trade, it is an allowable expenditure if it is expended on the ground of commercial expediency and in order to facilitate the carrying on of the business. We are not satisfied that the payment of Rs. 5,50,000 was made on the ground of commercial expediency. No commercial expediency was involved in making payment to the engineering college. The borrowing was not made for the purpose of the business, either directly or indirectly. The mere possibility that if the borrowing had not been made the assessee would have had to resort to its income-yielding assets does not improve the assessee's case. The borrowing still remained unrelated to the business of the assessee. The interest is not allowable as a deduction either under section 10(2)(iii) or under section 10( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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