TMI Blog1982 (6) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case, the payment of interest by the assessee on the moneys borrowed for the payment of dividend is an allowable deduction under the Income-tax Act, 1961 ? The question referred to us at the instance of the assessee, which we have numbered as question No. 2, runs as follows: " (2) Whether, on the facts and in the circumstances of the case, payment of interest by the assessee on the moneys borrowed for the payment of taxes is an allowable deduction under the Income-tax Act, 1961 ? The facts giving rise to this reference are as follows The assessee is a company incorporated under the Companies Act. It manufactures and sells sugar. It owns agricultural lands where sugarcane is grown and the cane grown is utilised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The said provision runs as follows " 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-... (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession..." There is an Explanation to this clause, but we are not concerned here with that Explanation. It is not disputed before us that the amount borrowed by the assessee for the payment of dividend must be regarded as a " capital borrowing " within the meaning Of Cl. (iii) of sub-s. (1) of s. 36 of the said Act, and, in fact, the generally accepted position is that the amounts borrowed by a company must be l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusively for the assessee's business. The AAC found that the assessee-company made remittances to the United Kingdom by taking overdrafts from the banks in India and the borrowings from the banks in India were partly invested in earning interest income in the United Kingdom. He sustained a disallowance of Rs. 18,920 for the assessment year 1958-59 and also maintained in full the disallowance by the ITO of the claims for interest for the other years. The Tribunal took the view that the correct way to interpret the transaction would be that the remittances to the United Kingdom were out of the profits earned in India and that the bank overdrafts in India had in fact been utilised in carrying on the assessee's business and the I.T. authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take into account not only the day to day running of a business but several other matters. In view of this, we see no reason to take a view different from the one taken by the Calcutta High Court in the aforesaid case. In the result, question No. 1 referred to above is answered in the affirmative and in favour of the assessee. As far as question No. 2 is concerned, it is the accepted position that, as far as this court is concerned, this question is concluded against the assessee by the decision of this court in Kishinchand Chellaram v. CIT [1978] 114 ITR 654. In view of the aforesaid, the said question is answered in the negative and against the assessee. Looking to the divided success achieved by the parties, there will be no order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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