WALDIES LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This is a reference under Section 256(1) of the Income-tax Act, 1961. The assessment year is 1971-72. The corresponding accounting period ended on September 30, 1970. The assessee had an overdraft account. Receipts were deposited in this account and payments including taxes were also made from this account.

(2.) The Income-tax Officer found that part of the amount drawn from the overdraft account had been used for payment of taxes. He also found that it was not practicable to ascertain what part of the earlier receipts had been utilised for repayment of overdraft and what part had been used for payment of taxes. He noticed that the average overdraft during the year amounted to Rs. 21,09,657 and the average resources of the company to Rs. 1,41,25,226. The ratio of average overdraft to average resources worked out to 15%. Accordingly, the Income-tax Officer came to the conclusion that 15% of the total amount of taxes during the year had been paid from the overdraft. He held that the proportionate interest on the overdraft utilised for payment of taxes amounted to Rs. 20,730. He disallowed this sum of Rs. 20,730 as deductible expenditure.

(3.) The matter ultimately came up before the Appellate Tribunal. The Tribunal referred to the decision of this court in Mannalal Ratanlal v. Commissioner of Income-tax [1965] 58 ITR 84 (Cal). It was held in this case that payment of income-tax was not a part of the expenditure of an assessee. Therefore, interest paid by the assessee on any sum borrowed for the payment of taxes, is not deductible from his income. All the relevant provisions of the Act relating to deduction had been considered in this judgment. The Tribunal, on the basis of this judgment, disallowed the interest of Rs. 20,730.