1982 (1) TMI 122

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....first payment was claimed against business income while the latter was claimed from the total income under section 80V along with other reliefs under Chapter VIA. These facts are evidenced in the adjustment statement annexed to the return of income. In this statement, the assessee-company itself disallowed 15 per cent of the interest of Rs. 91,953 payable by it under section 40A(8) of the Income-tax Act, 1961 ("the Act"). Such disallowance amounted to Rs. 13,793 on which there is no dispute. The ITO also sought to disallow Rs. 7,509 at 15 per cent of Rs. 50,063 paid and claimed under section 80V. According to the ITO, section 40A(8) authorises him to do so. The first appellate authority, however, found that section 40A applied only to the c....

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.... contained in any other provisions of this Act" will have the effect of cancelling out the eligibility for the full allowance under section 80V which is a relief under Chapter VIA. Interest on funds borrowed for payment of income-tax is not a deduction in computation of business income. It has also not been claimed as such. The ITO has followed the computation of income in the assessee's statement. However, he has added Rs. 7,509 at 15 per cent of the amount of Rs. 50,063 to such income from business. His order has the effect of allowing 85 per cent of the interest under section 80V while disallowing 15 per cent thereof under section 40A(8). This, in our opinion, is a clearly an inconsistent stand. The learned departmental representative t....

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....hat the payment of interest on moneys borrowed for payment of income-tax is not allowable as deduction, either as interest on borrowed capital or as business expenditure. There are similar other decisions in respect of other sources indicated at page 579 of Vol. I of Kanga and Palkhivala's Law and Practice of Income-tax. It is, therefore, clear that this interest is not deductible and was not, therefore, claimed for deduction in the computation of business income. If so, the question of disallowance of 15 per cent or any part of such amount under section 40A(8) does not arise. It must be pointed out that there is no dispute about the inference of the first appellate authority that the borrowings were for purposes of payment of income-tax. ....