TMI Blog1981 (2) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... eased the overdraft to Rs. 14,63,593 by 31st December, 1969. The ITO holding that the payment of advance tax could not be treated as business expense disallowed the proportionate interest amounting to Rs. 6,769 payable by the assessee to the bank. The assessee, being aggrieved by the aforesaid order, went up in appeal before the AAC. In view of the contentions raised before us, it would be necessary to refer to the order of the AAC. He observed, inter alia, as follows: "Shree Venkatratnam pointed out that the year's profit, prior to payment of taxes, was Rs. 27 lakhs. The previous year being the year ended 31st December, 1969, the learned counsel argued that almost the entire profit had gone into appellant's bank account by 15th December, 1969, and thus the advance tax was I met out of business profits and not out of the company's overdraft account. The learned counsel further argued that the bank account was continuously operated for all financial transactions, in which were embedded the income earnings of the company, and the income was always higher than the tax payments made during the year. Since the advance tax was paid out of the net cash available in business, he argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was concerned with what the assessee had actually done. The Tribunal took into account the fact that the AAC had pointed out that the advance tax had been paid by increasing the amount of overdraft on 15th December, 1969. In the opinion of the Tribunal the assessee could not, therefore, take the plea that the taxes had been paid out of the business profits put in the bank and that the overdraft had actually been utilised for the purpose of the business. That, as pointed out above, is not a finding of the AAC who, as a fact, found otherwise. The Tribunal observed that once it was held that the taxes had been paid from the borrowings from the bank, the aforesaid decision of the Calcutta High Court, viz., the decision in the case of Mannalal Ratanlal [1965] 58 ITR 84, would be applicable and would not have been treated as a business expenditure. The Tribunal, therefore, analysed the facts of Tingri Tea Co. Ltd. [1971] 79 ITR 294 (Cal), and in that background the Tribunal upheld the order of the AAC. Before we proceed further, it was indisputable that there were certain basic facts, as noted by the AAC in para. 5, that its entire profit of about Rs. 27,00,000 for the year under ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowed amount within 28 days from funds there without having to wait for the return of the money from Rangoon and it was, in those circumstances, held that the remittance was from profits and not capital. Applying the ratio of the aforesaid decision learned advocate for the assessee sought to urge that in this case such profits for the year in question far exceeded the liability for advance tax. The presumption would be that the taxes were paid out of the earnings of the profits made by the firm for the year and not of the overdraft account standing as such though the amount of money was put in the overdraft account. For the same proposition reliance was placed on the decision of the Madras High Court in the case of CIT v. Nadimuthu Pillai [1940] 8 ITR 249 [FB]. There the assessee who had income from property and other sources in British India owned certain valuable house property in Saigon outside British India. He had a current account with a bank in Saigon which showed an overdraft of $20,149 on 1st of April, 1935, and an overdraft of $12,165 on the 30th November, 1935. In December, 1935, a further sum of $5,719 was withdrawn from the bank and remitted to British India. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e United Kingdom for a period of at least six months during each of the years 1927-28 and 1930-31 and was accordingly chargeable to income-tax for those years as a person residing in the United Kingdom. During his absence from Ceylon his plantations were managed, under a power of attorney, by his agents in Colombo, who received the income and paid the expenses in connection with the plantations. Certain sums were remitted by his agents in 1927-28 and 1930-31 to the credit of his account at a bank in London. The appellant's account with his bank in Colombo was continuously overdrawn during the periods of his visits to the United Kingdom and at the date of each of the remittances made to him by his agents his account in their books showed a debit balance, which, however, fluctuated constantly throughout the material periods. No particulars were furnished of the income arising from his possessions in Ceylon but it was not denied that it was substantial in amount, and it was not suggested that the reductions shown from time to time in the debit balances in the agents' books were not the result of receipts on revenue account. On appeal against assessments under Case V of Schedule D for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arising from possessions in Ceylon, and I think that the Commissioners, on the facts of the case, were entitled to arrive at the conclusion at which they did arrive, and that the appeal should be dismissed. " To this effect was the view expressed by the Division Bench of this court in the case of CIT v. Tingri Tea Co. Ltd. [1971] 79 ITR 294. There the assessee, a sterling company, owned tea gardens in India. As a nonresident company, it had remitted profits from time to time to the United Kingdom for the purpose of declaration of dividends to its shareholders and the surplus balance after paying dividends was kept with the bank in the United Kingdom as deposits. During the relevant accounting years the assessee-company paid interest accruing on its overdrafts to the banks in India and the assessee claimed deduction of the amounts paid as interest paid on money borrowed for the purpose of its business. The ITO rejected the claim for each of the aforesaid years on the ground that the overdrafts from the banks were not incurred wholly and exclusively for the assessee's business. The AAC found that the assessee-company made remittances to the United Kingdom by taking overdrafts from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the overdraft and not out of the profit, was not agitated before the Tribunal. He sought to urge that if the point was not urged before the Tribunal, then such a contention should not be allowed to be agitated for the first time before this court. We have set out hereinbefore the relevant contentions before the AAC which were noted by the Tribunal. It may, in this connection, be worthwhile to repeat this contention as recorded in the order of the Tribunal : " We are not concerned with what the assessee would have done but we are concerned with what the assessee has actually done. The Appellate Assistant Commissioner had clearly pointed out that the advance tax had been paid by increasing the amount of overdraft on 15th December, 1969. The assessee cannot, therefore, take the Plea that the taxes had been paid out of the business profits put in the bank and that the overdraft had actually been utilised for the purpose of the business. That, as pointed out above, is not a finding of the AAC who, as a fact, found otherwise. Once we hold that the taxes had been paid out of borrowings from the bank, the conclusion is obvious, following the aforesaid decision of the Calcutta High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AAC and the Tribunal, the amount of Rs. 8,000 could be estimated as apportionable fees payable for appearing in the appeal proceedings. He held that this amount of Rs. 8,000 was not allowable as deduction and added the amount back. The Tribunal held that the entire amount claimed was allowable. It was held in reference that though the expenditure incurred for conducting the proceedings before the I.T. authorities might not have apparently related to the assessee's trading activities they might justifiably be necessary for increasing the assessee's net profits for the carrying on of the business with larger funds at the disposal of the assessee. From this point of view such expenditure were expenses " for the purpose of the business " in the wider sense and the entire sum of Rs. 16,000 paid by the assessee as professional fees to its tax consultants was an allowable deduction under s. 10(2)(xv) of the Indian I.T. Act, 1922. There, at p. 58 of the report, the Division Bench had observed that the payment of income-tax was not an expenditure for the purpose of earning profit. It was, on the contrary, a case of application of profits after these had been earned and not an expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the income-yielding asset and, therefore, there was a direct or indirect connection between the income and the expenditure. The revenue held against the assessee. It was held by this court on a reference that there was no provision in the I.T. Act where a deduction of that nature had been contemplated and the amount was not deductible in computing the assessee's income. It was for the assessee to prove that there was some statutory provision under which the claim could be allowed. Learned advocate for the assessee submitted that this proposition required re-examination. It must be stated also in all fairness to him that he did not say that the decision in the case of Mannalal Ratanlal v. CIT [1965] 58 ITR 84 (Cal) was not good law but what he submitted was that in view of the subsequent pronouncements of the Supreme Court, perhaps, the matter could be, and according to him, should be looked at from a different point of view. His main point was that though, on commercial principles, this payment of income-tax should be an allowable deduction, it was not so because of the express provision of s. 40(a)(ii) which enjoined that, notwithstanding anything to the contrary in ss. 30 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o year and during the whole period for which the business continued. Therefore, the expenditure which was incurred by the assessee in opposing coercive Government action resulted in saving taxation and safeguarding his business, was a justifiable expenditure in commercial expediency. Reliance was also placed on the decision of the Patna High Court in the case of Maharajadhiraj Sit, Kameshwar Singh v. CIT [1961] 42 ITR 774, where the Patna High Court held that interest on money borrowed for payment of tax was not a legitimate deduction in computing the business profit. But this observation, as noted in the headnote, according to the learned advocate for the assessee, was not the correct basis for the decision. Our attention was also drawn to the decision in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC) and the learned advocate drew our attention to the observations at p. 58 of the report. Reliance was also placed on the decision of the Supreme Court in the case Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT [1965] 56 ITR 52 (SC) and he drew our attention to the observations of the court at p. 59, where the court emphasised that whether a particular expenditure was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uting the income chargeable under the head " Profits and gains of business or profession ", any sum paid on account of the tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits and gains should not be deducted, no commercial principle whatsoever could make it a deductible expenditure under s. 37(1) of the Act. It was further held that since the amount paid as income-tax was not an expenditure at all, not even business expenditure, the interest paid by a trader on the money borrowed for the payment of income-tax could not be a business expenditure on any commercial principle, not even on the ground of commercial expediency. Many of the decisions referred to us as indicated before were also considered by the Division Bench in the aforesaid judgment. In that view of the matter and in the view we have taken on the first aspect of the argument advanced before us, it is not necessary for us to express any opinion on this question. We may also note that the Supreme Court in the case of Madhya Prasad Jatia v. CIT [1979] 118 ITR 200, noted that the expression "for the purpose of business " occurring ..... X X X X Extracts X X X X X X X X Extracts X X X X
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