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income-tax Officer Vs. Universal Radiators (P.) Ltd. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1982)1ITD296(Mad.)
Appellantincome-tax Officer
RespondentUniversal Radiators (P.) Ltd.
Excerpt:
.....on moneys borrowed by way of hundis for payment of taxes. the first payment was claimed against business income while the latter was claimed from the total income under section 80v along with other reliefs under chapter via.these facts are evidenced in the adjustment statement annexed to the return of income. in this statement, the assessee-company itself disallowed 15 per cent of the interest of hs. 91,953 payable by it under section 40a(8) of the income-tax act, 1961 ("the act"). such disallowance amounted to rs. 13,793 on which there is no dispute. the ito also sought to disallow rs. 7,509 at 15 per cent of rs. 50,063 paid and claimed under section 80v. according to the ito, section 40a(8) authorises him to do so. the first appellate authority, however, found that section 40a.....
Judgment:
1. This is a departmental appeal arising out of the order of the Commissioner (Appeals), Coimbatore, in the case of Universal Radiators (P.) Ltd., Coimbatore, for the assessment year 1978-79.

2. The assessee is a public limited company engaged in the manufacture of radiators. It had claimed net interest payments to the extent of Rs. 91,953 to Bank and public and Rs. 50,063 as interest on moneys borrowed by way of hundis for payment of taxes. The first payment was claimed against business income while the latter was claimed from the total income under Section 80V along with other reliefs under Chapter VIA.These facts are evidenced in the adjustment statement annexed to the return of income. In this statement, the assessee-company itself disallowed 15 per cent of the interest of Hs. 91,953 payable by it under Section 40A(8) of the Income-tax Act, 1961 ("the Act"). Such disallowance amounted to Rs. 13,793 on which there is no dispute. The ITO also sought to disallow Rs. 7,509 at 15 per cent of Rs. 50,063 paid and claimed under Section 80V. According to the ITO, Section 40A(8) authorises him to do so. The first appellate authority, however, found that Section 40A applied only to the computation of income from business and that there was no possibility of application of Section 40A(8) in respect of interest claimed and allowed under Section 80V of the Act. In the departmental appeal it is claimed that the first appellate authority had failed to appreciate that Sections 40A(8) and 80V are independent sections. The learned departmental representative vehemently argued that it is not open to the assessee to split up the interest payments on funds admittedly borrowed for business purposes, whether it be for working funds or for payment of taxes. According to him interest allowable under Section 80V is not precluded from being considered for disallowance under Section 40A(8). The learned counsel for the assessee relied upon the orders of the first appellate authority.

3. We have carefully considered the records as well as arguments.

Section 40A(1) reads as under : Expenses or payments not deductible in certain circumstances.-(1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head 'Profits and gains of business or profession'.

It is seen from the above, that all the disallowances authorised by Section 40A relate to computation of income under the head "Profits and gains of business or profession". The learned departmental representative, therefore, is in error in assuming that the words "notwithstanding anything contrary contained in any other provisions of this Act" will have the effect of cancelling out the eligibility for the full allowance under Section 80V which is a relief under Chapter VIA. Interest on funds borrowed for payment of income-tax is not a deduction in computation of business income. It has also not been claimed as such. The ITO has followed the computation of income in the assessee's statement. However, he has added Rs. 7,509 at 15 per cent of the amount of Rs. 50,063 to such income from business. His order has the effect of allowing 85 per cent of the interest under Section 80V while disallowing 15 per cent thereof under Section 40A(8). This, in our opinion, is a clearly an inconsistent stand.

The learned departmental representative tried to persuade us that notwithstanding the acceptance by the IAC (Assessment) of the assessee's mode of computation, the disallowance could be justified for two reasons. Firstly, according to him the assessee is eligible to claim the interest as a business deduction, because the payment of tax arises as a result of the assessee's business activity. Secondly, he claimed that even the claim and allowance under Section 80V gets abridged by the restriction under Section 40A(8). We are not in a position to agree with either of his arguments. The assessee has not claimed the payment of Rs. 50,063 as a deduction from business income.

It has rightly claimed as a deduction only under Section 80V of the Act which reads as under : Deduction of interest on moneys borrowed to pay taxes.-In computing the total income of an assessee, there shall be allowed by way of deduction any interest paid by him in the previous year on any money borrowed for the payment of any tax due from him under this Act.

Section 80V is an independent relief available against total income even if there were no business and the payment which qualifies for this relief cannot by any stretch of imagination be construed as a normal business deduction. Section 80V was enacted only because such deduction was considered otherwise inadmissible. The Patna High Court in the case of Maharajadhiraj Sir Kameshwar Singh v. CIT [1961] 42 ITR 774 and the Calcutta High Court in Mannalal Ratanlal v. CIT [1965] 58 ITR 84 held that the payment of interest on moneys borrowed for payment of income-tax is not allowable as deduction, either as interest on borrowed capital or as business expenditure.

There are similar other decisions in respect of other sources indicated at page 579 of Vol. I of Kanga and Palkhivala's Law and Practice of Income-tax. It is, therefore, clear that this interest is not deductible and was not, therefore, claimed for deduction in the computation of business income. If so, the question of disallowance of 15 per cent or any part of such amount under Section 40A(8) does not arise. It must be pointed out that there is no dispute about the inference of the first appellate authority that the borrowings were for purposes of payment of income-tax. The other argument that interest allowed under Section 80V is also subject to Section 40A(8), is based upon the non obstante clause found in the words "notwithstanding anything to the contrary contained in any other provisions of this Act" overlooking the immediately succeeding words "relating to the computation of income under the head 'Profits and gains of business or profession' ". It is, therefore, clear that such disallowance is not warranted in respect of payment of interest allowable, say, against income from property or other sources and much less against interest under Section 80V, the deduction of which arises after the computation of both business and total income. Hence, we uphold the order of first appellate authority on this point.

4. [This para is not reproduced here as it deals with a minor issue not covered in the synopsis.]


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