TaxTMI 
TaxTMI 
1982 (6) TMI 65
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....argument covered a wide gamut. The learned departmental representative also very ably replied the contentions of Shri Shah. However, in order to proceed further it may be necessary to state the facts which are in brief. 3. The assessee is a limited company carrying on business in manufacturing textiles in Ahmedabad. The assessee paid interest under section 220(2) of the Income-tax Act, 1961 ("the Act") in the assessment year 1977-78 which is the year under appeal (accounting year of the assessee being calendar year). The details of such interest are as follows: DETAILS OF INTEREST PAID TO INCOME-TAX DEPARTMENT UNDER SECTION 220(2) I Assessment year 1973-74 [Order dated 1-1 1-1976]  ....
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.... 2,310 82,657 II Assessment year 1974-75 [Order dated 1-11-1976] i. On Rs. 5,63,967 from 27-2-1975 to 5-7-1975 22,556 ii. On Rs. 2,59,398 from 27-2-1975 to 24-5-19....
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....; ---------------- The assessee claimed the interest amount of Rs. 1,41,516 as a deduction from income from business. The ITO did not accept the assessee's claim on the ground that the interest payment to the income-tax department is not for the purpose of carrying on the business activity of the assessee but on account of default of non-payment of tax. 4. The assessee carried the matter in appeal. The Commissioner ....
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....,884 3. Counciling charges 140 4. Pump charges 243 5. Ocean freight  ....
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....sp; ----------------- Shri Shah fairly stated that the items are covered by the Special Bench decision in the case of J. Hemchand & Co. but the assessee desires to keep the issue alive. Respectfully following the decision in the case of J. Hemchand & Co., we hold the claim against the assessee. 7. Coming to the second ground, which is the question actually referred to the Special Bench, Shri Shah at the very outset stated that he is not pressing his claim for deduction of interest under section 36(1)(iii) of the Act, and in our view rightly. He has confined his arguments only on the allowability under section 28 or 37 of the Act. We have already indicated in the beginning that the question involved in this appeal has already been decided by the tw....
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....ustice Beg in the case of Indian Aluminium are referred to for the purpose of accepting Shri Shah's proposition that in the case of a limited company any expenditure incurred is necessarily for the purpose of the business as a company comes into existence only with the object of carrying on business. This argument is advanced for the purpose of distinguishing all those decisions dealing with the claim for payment of interest on the ground that those cases dealt with individual or partnership firms. It is necessary at this stage to consider the above aspect before we proceed further. We do not think that there can be any such distinction between a corporate body and a non-corporate body in regard to the claim of expenditure under section 28 or section 37. The tests laid down in the decided cases are same. Lordship Justice Beg wrote a separate judgment while deciding the Indian Aluminium's case and this is what his Lordship observed: "It is true that wealth-tax is imposed on 'net wealth' of assessees, as defined by section 2, sub-section (c), who are all 'persons'. These persons are both natural and artificial. In the case of an artificial or juristic person like the company be....
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....d by an assessee as a trader. Recently, the Supreme Court had occasion to consider the claim regarding interest on money borrowed in the case of Madhav Prasad Jatia v. CIT [1979] 118 ITR 200. While dealing with the claim under section 10(2)(xv) of the 1922 Act the Supreme Court referred to various decisions on the point right from the decision of the Bombay High Court in the case of Bai Bhuriben Lallubhai v. CIT [1956] 29 ITR 543. It was observed by their Lordships in Jatia's case: "Proceeding to consider the claim for deduction made by the assessee under section 10(2)(iii) or section 10(2)(xv), we may point out that under section 10(2)(iii), three conditions are required to be satisfied in order to enable the assessee to claim a deduction in respect of interest on borrowed capital, namely, (a) that money (capital) must have been borrowed by the assessee, (b) that it must have been borrowed for the purpose of business, and (c) that the assessee must have paid interest on the said amount and claimed it as a deduction. As regards the claim for deduction in respect of expenditure under section 10(2)(xv), the assessee must also satisfy three conditions, namely, (a) it (the expenditu....
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....l Engg. and that of the Punjab and Haryana High Court in the case of Oriental Carpet, disallowing a claim of the nature involved in this case, can be ignored on the ground that they are contrary to the decisions of the Supreme Court. 12. Birla Cotton's case dealt with the claim for expenditure incurred by an assessee in the proceedings before the Income-tax Investigation Commission. While allowing the assessee's claim, their Lordships observed: "The essential test which has to be applied is whether the expenses were incurred for the preservation and protection of the assessee's business from any such process or proceeding, which might have resulted in the reduction of its income and profits and whether the same were actually and honestly incurred. It is not possible to understand how the expenditure on the proceedings in respect of the Investigation Commission by the assessee will not fall within the above rule. Even otherwise, the expenditure was incidental to the business and was necessitated or justified by commercial expediency. It must be remembered that the earning of profits and the payment of taxes are not isolated and independent activities of a business. These activ....
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.... Saheb of Morvi [1975] 100 ITR 67. Though, according to Shah, those cases dealt with deduction from out of income from other sources under section 57, the decision is very pertinent so far as this case before us is concerned. This leads us to the consideration of the decision of the Bombay High Court. There the question that arose was whether the expenditure in the form of interest paid on borrowings for the purpose of payment of estate duty, on the death of the owner, by the trustees under section 12(2) of the 1922 Act is allowable or not. Their Lordships held that on the facts of that case, the borrowings were made by the trustees for the purpose of meeting the estate duty liability, which is attached to the property which was the subject-matter of the trust and that too for the purpose of maintaining or preserving the erstwhile income that was being received from the corpus of the trust. Accordingly, the expenditure was held to be a permissible deduction. We are not able to see how the decision of the Bombay High Court can at all be applied to the facts of the case before us. In this case, we are concerned with the claim of interest for non-payment of tax. The tax is determined ....