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Section 80V [omitted with effect from 1-4-1986] of the Income-tax Act, 1961 - Deductions - Interest on moneys borrowed to pay tax - Assessment years 1978-79 and 1979-80 - Whether where borrowings of earlier years were utilised for making payment of taxes for assessment year in question and interest was actually paid during such assessment year, interest so paid was entitled to deduction under section 80V - Held, yes FACTS During the assessment years 1978-79 and 1979-80 the assessee contended that the borrowings of the earlier years had been utilised for making payment of taxes outstanding on the first day of the accounting year relevant to the aforesaid assessment years on which the interest had been actually paid during the assessment years in question and, therefore, it was entitled to deduction under section 80V. The assessee's claim was disallowed by the ITO. The Tribunal also upheld the ITO's order. On reference: HELD On the plain reading of the provisions of section 80V it is clear that the. deduction of interest paid during the previous year on any money borrowed for payment of any tax is allowable. The money is borrowed once, but liability of payment of interest remains till the borrowed money is returned. The only condition in section 80V is that there must be actual payment of interest and that the money should be borrowed for the payment of tax. If the assessee was in a position to satisfy that the money had been borrowed for payment of tax, then the payment of interest thereon should be allowed. If the said amount remained outstanding during the relevant previous assessment year and on that account the interest was paid in the succeeding assessment year, then the deduction could not be disallowed for the reason that money was not borrowed during that succeeding year. Therefore, it was to be held that the borrowings of the previous years which had been utilised for making payment of taxes outstanding as on the first day of the accounting year, on which the interest had been actually paid during the relevant previous year, would be entitled to deduction under section 80V. EDITORIAL COMMENTS The short issue for consideration related to interpretation…

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