Law: Income Tax Act, 1961

Section: 37

Income-tax----Business expenditure---Interest---Money borrowed for paying income­tax---Interest on money borrowed is not deductible---Indian Income Tax Act, 1961, S.37. Interest on money borrowed for payment of income-tax is not an expenditure laid out wholly and exclusively for the purpose of business as contemplated by subsection (1) of section 37 of the Income Tax Act, 1961. East India Pharmaceutical Works Ltd. v. CIT (1997) 224 ITR 627 (SC) fol. JUDGMENT A. K. MATHUR, C.J.---This is a reference under section 256(1) of the Income Tax Act, 1961, at tile instance of the assessee and the following question of law has been referred by the Tribunal for answer of this Court: "Whether, on the facts and in the circumstances of the case, the interest payment of Rs.3,18,203 on bank overdrafts was an allowable deduction in computing the income of the assessee?" The brief facts which are necessary for disposal of this reference, are that the assessee during .the financial year April 1, 1979, to March 31, 1980, relevant to the assessment year 1980-81, derived income from interest from banks and private parties at Rs.1,67,338 and dividend income from Indian as well as foreign companies amounting to Rs.5,27,146. The assessee paid interest to the banks to the extent of Rs.3,75,203 and claimed deduction of the same in computing the income from interest and dividends. The Income-tax Officer allowed the deduction for only Rs.57,000 under section 80VV of the Income-tax Act, relatable…

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