Case: Messrs East India Pharmaceutical Works Limited Vs. Commissioner of Income Tax. West Bengal

entire profits had been pumped into the over-draft account, whether such profits were more than the tax amount paid for the relevant year and all other germane factors. But when the assessee never advanced the contention either before the Tribunal or before the High Court does not bring within its seep the contention as is advanced by Mr. Bhattacharyya. 3. Learned counsel in this Court, it would not be appropriate for this Court to look into the additional papers produced by the assessee for entertaining the contention and answering the same. It is true that the Calcutta High Court in Woolcombers case (supra) came to the conclusion that where profits were sufficient to meet the advance tax liability and profits were deposited into the overdraft account of the assessee then it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. But to raise the presumption in that particular case there were sufficient materials and the assessee had urged the contention before the High Court. The afo resaid decision has been followed in the case of Reckitt (supra) where without any further discussion the Woolcombers case has been followed. But it may be noticed that the question posed in Reckitts case was directly to the effect as to where the entire trading receipts deposited by the assessee in the overdraft account and the tax was paid out of the overdraft account whether the interest paid the assessee for payment of tax out of the overdraft account is an allowable deduction. In Indian Explosives Ltd. case (supra) the aforesaid two decisions of the Calcutta High Court had been followed and the question that had been posed was to the effect whether the interest on an overdraft account paid towards the amount drawn for discharging the tax liability could be an allowable expenditure and, therefore, the High Court answered in favour of the assessee and against the Revenue. It may be noticed that in the aforesaid case the Court did not express any opinion on the question whether the interest paid on money borrowed for payment of tax was allowable as business expenditure. To the same effect is the decision of the Calcutta High Court in Alkali Chemical Corporation of India Ltd. (supra). It ma y be noticed that in the present case even before the Tribunal what was argued on behalf of the assessee is that the amount of interest paid to the Bank represents and expenditure laid out or expended wholly and exclusively for the purpose of business. In furtherance of this contention it has also been urged before the Tribunal that non-payment of the taxes which were to the tune of lakhs would have entirely crippled the business and even the very existence of the company would have been thr eatened and, therefore, the expenditure thus incurred should have been held to be an expenditure for carrying on the business and thus allowable under Section 37(1) of the Act which contention, however, was rejected by the Tribunal relying upon the decision of this court in Padmawati (supra). In Padmawatis case this court held that meeting the liability of income tax was a personal one and the dominant purpose for paying annuity deposit was not to earn income but to meet the statutory liability of making the deposit. It was further held that the expenditure thus made was not wholly and exclusively for the purpose of earning income and consequently the interest which was paid to discharge the aforesaid tax liability was not allowable under Section 57(iii) of the Income Tax Act, 1961. In Madhav Prasads case (supra) this Court also came to the conclusion that tin order to enable an assessee to claim deduction in respect of the interest on borrowed capital under Section 10(2) (iii) of the Income Tax Act, 1922 three conditions are required to be satisfied; namely,(1) That money must have been borrowed by the assessee; (2) that it must have been borrowed for the purpose of business; and (3) that the assessee must have paid interest on the said amount and claimed it as a deduction. 4. It was further held that the payment made by the assessee by drawing a cheque on the overdraft account was a borrowing which was made to meet her personal obligation and not the obligation of the business and as such expenditure incurred by the assessee by way of payment of interest thereon was not for carrying on business and consequently said expenditure could not be regarded as business expenditure. In the aforesaid case the overdraft in question has been made by the assessee to discharge her personal obligation in pursuance to a promise made by her to donate a sum of Rs.10 lakhs for starting an Engineering College and the question of payment of income-tax liability did not arise in that case. The case, therefore, is not of any direct assistance to the present case. But the principle laid down therein, namely, if capital is borrowed to meet the personal obligation of the business then the expenditure cannot be regarded as a business expenditure cannot be regarded as a business expenditure would apply. As has been already noticed in Padmawatis case (supra) this Court has affirmatively held that meeting the liability for income tax was a personal liability and such expenditure can never be held to be wholly and exclusively for the purpose of earning income. 5. In the aforesaid premises and in view of the question that arose out of the order of the Tribunal and which was referred by the Tribunal to the High Court for being answered given by the High Court. It may further be stated that even before the High Court the assessee has not taken any step to get the question referred in the light of the contention which were advanced in this Court by filing an application under Section 256(2) of the Act.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]Having considered the rival submissions at the bar though we find considerable force in the arguments advanced by the learned counsel appearing for the appellant but in the facts and circumstances of the present case, on going through the order of the Tribunal as well as the question referred to by the Tribunal for being answered by the High Court and the arguments advanced before the Tribunal as well as in the High Court by the counsel appearing for the assessee, it is not possible for us to hold that any such contention, as was advanced before this court by the assessee had in fact been advanced either before the Tribunal or before the High Court. The question whether the presumption can be drawn that the taxes were paid out of the profits of the relevant year and not out of the over-draft account for the running of the business as was drawn in Woolcomberss case (supra) by the Calcutta High Court and was followed in 3 other cases of the same High Court, would essentially depend upon the fact as to whether the entire profits had been pumped into the over-draft account, whether such profits were more than the tax amount paid for the relevant year and all other germane factors. But when the assessee never advanced the contention either before the Tribunal or before the High Court does not bring within its seep the contention as is advanced by Mr.the aforesaid case the overdraft in question has been made by the assessee to discharge her personal obligation in pursuance to a promise made by her to donate a sum of Rs.10 lakhs for starting an Engineering College and the question of payment of income-tax liability did not arise in that case. The case, therefore, is not of any direct assistance to the present case. But the principle laid down therein, namely, if capital is borrowed to meet the personal obligation of the business then the expenditure cannot be regarded as a business expenditure cannot be regarded as a business expenditure would apply. As has been already noticed in Padmawatis case (supra) this Court has affirmatively held that meeting the liability for income tax was a personal liability and such expenditure can never be held to be wholly and exclusively for the purpose of earningthe aforesaid premises and in view of the question that arose out of the order of the Tribunal and which was referred by the Tribunal to the High Court for being answered given by the High Court. It may further be stated that even before the High Court the assessee has not taken any step to get the question referred in the light of the contention which were advanced in this Court by filing an application under Section 256(2) of the Act.