KAMESHWAR SINGH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) For the assessment year 1951-52 the assessee claimed that out of the overdrafts taken by him from the Banks, he had utilised a sum of Rs. 2,00,000/- for an advance payment of income-tax under Section 18A of the Income-tax Act and that the interest paid on the overdraft must be allowed as an expense. The Income-tax Officer refused to allow the deduction and on appeal the order of the Income-tax Officer was affirmed by the Appellate Assistant Commissioner. The assessee took the matter on appeal to the Income-tax Appellate Tribunal. The appeal was dismissed by the Appellate Tribunal on the ground that the interest paid for borrowing money for the purpose of meeting tax liability cannot be a legitimate deduction. In these circumstances the Income-tax Appellate Tribunal has submitted the following question of law for the determination of this High Court : "Whether the interest paid by the assessee on money borrowed for paying tax under Section 18A of the Indian Income-tax Act is an allowable deduction?"

(2.) On behalf of the assessee learned counsel put forward the argument that the interest received by the assessee on the advance payment of tax under Section 18A was a taxable income and on the same reasoning the interest paid by the assessee for borrowing the amount to pay the tax was a legitimate deduction. The claim of the assessee was based upon Section 12(2) of the Income-tax Act, which is to the following effect :

(3.) There is also another point of view from which the question can be approached. It is true that under Sub-section (5) of Section 18A of the Income-tax Act the Central Government is bound to pay simple interest at two per cent per annum on any amount payable before the 1st of April, 1955, and four per cent per annum on any amount payable after that date. But the purpose of the assessee in making an advance payment of tax under Section 18A is not to earn the statutory rate of interest under Sub-section (5) of Section 18A; on the contrary, the object of the assessee in making the advance payment is to discharge the statutory obligation imposed upon the assessee by Sub-section (1) of Section 18A, which is to the following effect;