Interest on Tax Payment Deductible: High Court rules in favor of assessee for assessment year 1971-72

The High Court of Calcutta ruled in favor of the assessee, allowing the proportionate interest paid on the amount utilized for tax payment from the overdraft account as a deductible expense for the assessment year 1971-72. The court referred to a previous judgment and held that the interest paid was an allowable deduction. Each party was ordered to bear their own costs. Judge Sudhindra Mohan Guha concurred with the decision.

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Issues involved: Interpretation of tax deductions u/s proportionate interest paid on amount utilized for payment of taxes from overdraft account.

In this judgment, the High Court of Calcutta considered a reference regarding the assessment year 1971-72. The company's profits before tax were Rs. 1,06,62,415, while the income returned by the assessee was Rs. 1,06,80,025. The income assessed by the Income Tax Officer (ITO) was Rs. 1,08,05,310. The taxes paid by the assessee for the year amounted to Rs. 73,32,054. The court examined the month-wise trading receipts and taxes paid from the bank overdraft account as per the assessment order. The court referred to a previous judgment in Woolcombers India Ltd. v. CIT and concluded that the proportionate interest paid by the applicant on the amount utilized for tax payment from the overdraft account is an allowable deduction. The court answered the question in the negative and in favor of the assessee. The judges ordered that in the given circumstances, each party would pay their own costs. Judge Sudhindra Mohan Guha concurred with the judgment.

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