Bombay High Court
Hindustan Cocoa Products Limited vs Commissioner Of Income-Tax on 24 November, 1998
Equivalent citations: [1999]236ITR140(BOM)
Author: Pratibha Upasani
Bench: Pratibha Upasani
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference under Section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following questions of law to this court for opinion at the instance of the assessee :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest paid on borrowed monies by way of public deposits is allowable only in computing income from business and thereby holding that the provisions of Section 40A(8) are applicable to such interest payments ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the liability for the payment of surtax is not an admissible deduction in the computation of income under the Income-tax Act, 1961 ?"
2. The second question is covered by the decision of the Supreme Court in Smith Kline and French (India) Ltd. v. CIT [1996] 219 ITR 581, in favour of the Revenue. Following the same, question No. 2 is answered in the affirmative and in favour of the Revenue.
3. So far as question No. 1 is concerned, Mr. Murlidharan, learned counsel for the assessee, submits that the question is not happily worded. According to him, the real controversy is whether the assessee is entitled to deduction under Section 80V of the Income-tax Act, 1961 ("the Act"), of the interest paid by it on money borrowed by it by way of public deposits which can be attributed to user of such borrowed money for payment of taxes. He submits that the amount borrowed in the form of public deposits by the assessee was utilised for payment of taxes and that being so, the assessee was entitled to deduction under Section 80V of the Act and hence Section 40A(8) would have no application to such interest.
4. We have carefully considered the above submission of Mr. Murlidharan. The real dispute, as rightly pointed out by learned counsel, is whether the interest paid on the amount borrowed by the assessee in the form of public deposits which was utilised for payment of taxes under this Act is an admissible deduction under Section 80V of the Act. Section 80V, as it stood at the material time reads as follows :
"80V. 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."
5. This section was inserted in the Act by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, and deleted by the Finance Act, 1985, with effect from April 1, 1986. It is clear from a plain reading of the above section that it permits deduction in respect of interest paid by the assessee on any money borrowed for payment of any tax due from him under the Act. The object of this section is to encourage the taxpayers to pay his tax dues under the Act promptly even by borrowing. The benefit of this section, therefore, would be available if the borrowings were for the purpose of paying Income-tax. In the instant case, admittedly, the amounts were borrowed in the form of public deposits. The borrowing was not for the purpose of paying taxes due under the Act. There is a specific finding of fact that there is no nexus between the borrowings and the payment of taxes. The borrowings were only for augmenting the working funds of the assessee. Under the circumstances, the assessee is not entitled to deduction of any part of the interest paid on such borrowings under Section 80V of the Act. The Tribunal has rightly held that it was allowable as a deduction in computing income from business and that Section 40A(8) would be applicable to such expenditure. The claim of the assessee for deduction under Section 80V of the Act of the proportionate interest attributable to the amount of borrowed money used by the assessee for the purpose of payment of income-tax is, therefore, not tenable.
6. We are supported in our above conclusion by the decision of this court in Abdulhussein G. Tambawala v. CIT [1998] 234 ITR 258, wherein it was held that the benefit of this provision is available only in respect of interest paid by the assessee in the previous year on any money borrowed "for the payment of any tax due from him under the Act".
7. Learned counsel for the assessee relies on the decision of the Andhra Pradesh High Court in CIT v. Bakelite Hylam Ltd. [1988] 171 ITR 583. The ratio of that decision, in our opinion, has no application to the facts of the present case. Otherwise also, we are of the clear opinion that no deduction under this section is available unless money is borrowed specifically for the payment of any tax due under this Act.
8. In view of the above, question No. 1 is answered in the affirmative and in favour of the Revenue. Reference is disposed of accordingly. No order as to costs.