Interest on Overdraft Account Deductible for Income Tax

The court held that the interest paid on the overdraft account was deductible for income tax purposes and qualified for allowance under section 36(1)(iii) of the Income-tax Act, 1961. The court ruled in favor of the assessee on both issues, following established legal principles and precedents.

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Issues Involved:
The judgment involves the questions of law regarding the deductibility of interest paid on overdraft account for income tax liability and the allowance under section 36(1)(iii) of the Income-tax Act, 1961.

Deductibility of Interest on Overdraft Account:
The case pertains to the assessment year 1973-74, where a sum of Rs. 14,917 paid as interest to a bank was disallowed by the Income-tax Officer, alleging it was for money borrowed for income tax payment. The Appellate Assistant Commissioner noted that the company had adequate profits to cover the tax liability and had not borrowed money for tax payments. The Tribunal, considering the precedent set in Indian Explosives Ltd. v. CIT, held that the interest paid on the overdraft account was deductible. The court relied on earlier judgments in Reckitt and Colman of India Ltd. v. CIT and Woolcombers of India Ltd. v. CIT to support this decision. Consequently, the first question was answered in the negative and in favor of the assessee.

Allowance under Section 36(1)(iii) of the Income-tax Act:
The second question raised was whether the sum of Rs. 14,917, being the interest on the company's overdrafts for payment of income tax liability, qualified for allowance under section 36(1)(iii) of the Income-tax Act, 1961. The Tribunal ruled in favor of the assessee, aligning with the decision on the first question and the principles established in the aforementioned cases. Therefore, question No. 2 was also answered in the negative and in favor of the assessee.

Separate Judgment:
Justice Bhagabati Prasad Banerjee concurred with the decision made by Justice Suhas Chandra Sen.

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