Interest on bank overdrafts used for tax payment is not deductible as business expenditure under income-tax law.

Interest paid on bank overdrafts used in financial transactions was examined as a deduction claim under the Income-tax Act, 1961. Applying the principle that interest on money borrowed for payment of income-tax is not expenditure laid out wholly and exclusively for business purposes under section 37(1), the court followed Supreme Court authority and accepted the Tribunal's view. The interest payment was therefore not an allowable deduction, and the issue was decided in favour of the Revenue.

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Issues: Whether interest paid on bank overdrafts was an allowable deduction in computing the assessee's income.

Analysis: The reference arose from the assessee's claim to deduct interest paid on borrowings used in the course of its financial transactions. The Court applied the governing principle that interest on money borrowed for payment of income-tax is not expenditure laid out wholly and exclusively for the purpose of business within the meaning of section 37(1) of the Income-tax Act, 1961. It followed the Supreme Court's ruling on the same principle and held the Tribunal's view to be correct.

Conclusion: The interest payment was not an allowable deduction and the question was answered in favour of the Revenue.

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