Whether benefit of section 80V would be available to the Assessee if the borrowings were taken for the purpose of payment of tax? And whether disallowance under rule 6D should be computed with reference to the total expenditure incurred by an employee or other persons during the entire year and not with reference to each trip separately?
Last updated: 07 August 2014
Court :
Bombay High Court
Brief :
In AY 1985-86, the Assessee had paid interest on deposits and claimed deduction under section 80V of the I.T. Act 1961 as the said deposits were primarily obtained for the payment of taxes under the I.T. Act. The Assessing Officer rejected the claim for a deduction under section 80V and ordered that 15 % of the interest paid be disallowed under section 40A(8) of the Act. In Appeal, the CIT (Appeals) allowed the claim of the Assessee under section 80V of the Act. The same was also upheld by the Tribunal. The CIT (Appeals)directed the Assessing Officer to recompute disallowance under Rule 6D of the Rules on the basis of the aggregate trips of eachemployee and not on the basis of each trip undertaken by the said employee. Held that benefit of section 80V would be available to the Assessee if the borrowings were taken for the purpose of payment of tax.On analysing section 37(3) of the Act, along with Rule 6D of the I.T. Rules 1962, the court held that disallowance under rule 6D should be computed with reference to the total expenditure incurred by an employee during the entire year and not of each trip separately.
Citation :
CIT Appellant Versus M/s Mafatlal Dyes and Chemicals Ltd Respondent
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX REFERENCE NO.242 OF 1997
The Commissioner of Income-Tax,
Bombay City II, Bombay
Appellant
Versus
M/s Mafatlal Dyes and Chemicals Ltd.,Bombay
Respondent
Mr Suresh Kumar for Applicant.
Mr AtulJasani for Respondent
Before CORAM:
Hon’bleS.C. DHARMADHIKARI ANDHon’bleB.P. COLABAWALLA JJ.
Reserved on : 24th July 2014.
Pronounced on : 1st August 2014.
JUDGMENT (Per B.P. Colabawalla J.) :-
1. By this Income Tax Reference under section 256(1) of the Income Tax Act 1961. The Income Tax Appellate Tribunal (hereinafter referred toas “the Tribunal”) has referred the following questions of law for theopinion of this Court :-
“(A) Whether on the facts and in the circumstances of the case, theTribunal was right in law in allowing the assessee's claim ofRs.5,07,247/- disallowed u/s 40A(8) of the I.T. Act ?
(B) Whether on the facts and in the circumstances of the case, theTribunal was right in law in confirming the order of the CIT(A) directingthe Assessing Officer to recompute the disallowance under Rule 6D of theI.T. Act on the basis of aggregate trip of each employee and not on thebasis of each trip undertaken by the employee ?”
2. The Assessment Year in question is 1985-86. As far as Question (A)is concerned, it was the case of the Assessee that the interest paid ondeposits ought to be allowed as a deduction under section 80V of the I.T.Act 1961 as the said deposits were primarily obtained for the payment oftaxes under the I.T. Act. However, the Assessing Officer rejected the claimfor a deduction under section 80V of the Act and instead ordered that 15 %of the interest paid be disallowed under section 40A(8) of the Act. InAppeal, the CIT (Appeals) allowed the claim of the Assessee under section80V of the Act and the same was also upheld by the Tribunal. Section 80Vas it then stood, read as under:-
“Deduction of Interest on moneys borrowed to pay taxes.80V-- In computing the total income of an assessee, there shall be allowedby way of deduction any interest paid by him in the previous year on anymoney borrowed for the payment of any tax due from him under this Act.”The Tribunal, being of the opinion that the aforesaid issue gave rise toa question of law, referred the same for the opinion of this Court.
3. We find that Question (A) referred for our opinion is squarelycovered by a judgment of this Court in the case of Hindustan CocoaProducts Ltd. v/s Commissioner of Income Tax, reported in [1999] 236ITR 140. In the said judgment, this Court observed that the benefit ofsection 80V would be available to the Assessee if the borrowings weretaken for the purpose of payment of tax. In view of the factual findings inthe present case that the deposits were primarily taken for the payment oftaxes, and which are uncontroverted even before us, we are of the view thatthe ratio of the judgment of this Court in Hindustan Cocoa Products Ltd.(supra) would sqaurely apply to the facts of the present case. Question (A)is therefore answered in the affirmative, i.e. against the Revenue and infavour of the Assessee.
4. Question (B) really arises on an interpreation of Rule 6D of theIncome Tax Rules, 1962 which dealt with expenditure incurred by theAssessee in connection with the travel of an employee. In the present case,the CIT (Appeals) directed the Assessing Officer to recompute disallowanceunder Rule 6D of the Rules on the basis of the aggregate trips of eachemployee and not on the basis of each trip undertaken by the said employee.This direction of the CIT (Appeals) was confirmed by the Tribunal.
To read the full judgement, please find the attached file.
Attached File:
Hetvi Sheth
Published in Income Tax
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