Judgment:
Y.V. Anjaneyulu, J.
1. This reference relates to the income-tax assessment year 1977-78. It is made at the instance of the Commissioner of Income-tax under section 256(1) of the Income-tax Act, 1961 ('the Act', for short).
2. The assessee is a company incorporated under the Companies Act. Its bank account, we are told, is continually an overdraft account. Substantial interest was paid to the bank on the amounts of overdraft ascertained at periodical intervals. It is common ground that all this interest was allowed as deduction in computing of the assessee under section 36 of the Act.
3. It transpired that the assessee-company invited the public to make deposits with it. Pursuant to such invitation, deposits aggregating to deposits with it. Pursuant to such invitation, deposits aggregating to Rs. 65,76,000 were made by the public. These monies, we understand, are deposits in the overdraft bank account with the result that the overdraft balance was considerably reduced and so also the interest thereon.
4. Under section 40A(8) of the Act, there is prohibition against the deduction of interest of 15% on the deposits received by the assessee. The assessee can claim deduction only of the sum in excess of 15%. It would appear that for the purpose of section 40A(8), the Income-tax Officer reckoned interest to be disallowed at Rs. 1,29,151. The assessee claimed that while the proposal to disallow the interest of Rs. 1,29,151 under section 40A(8) of the Act is unexceptionable, still the same amount has to be allowed by way of interest on the amounts borrowed for payment of tax under section 80V of the Act. It was pointed out that the assessee paid a sum of Rs. 103 lakhs by way of taxes during the assessment year. All these monies were drawn from the overdraft account of the company. Had it not been for the aggregate of the fixed deposits in the bank account, the liability to pay interest would have been far higher and the revenue would certainly have deduction of the entire interest. Inasmuch as sums aggregating to Rs. 103 lakhs were drawn from the overdraft account for payment of taxes, the assessee claimed that the interest of Rs. 1,29,151 must be treated as corresponding to the monies drawn for the payment of tax and the same be allowed under section 80V of the Act. The Income-tax Officer rejected the claim and it was upheld on appeal by the Commissioner of Income-tax. On further appeal, the Tribunal, however, accepted the assessee's contention. The Revenue was aggrieved by the decision of the Tribunal and that is how the present reference arises.
5. The facts are broadly clear. There is no dispute about the assessee having drawn Rs. 103 lakhs from the bank overdraft account for payment of taxes. Had the assessee separately borrowed this amount and paid interest thereon, the interest payable would have been deducted under section 80A of the Act. As matter of commercial expediency and convenience, the assessee did not think it expedient to do so. On the contrary, the tax was paid from out of the consolidated overdraft account maintained for the purpose of business. Although there is no direct link between the fixed deposits being used for payment of taxes and the payment of interest thereon, we do not think that the Tribunal is unjustified in drawing the inference that monies were drawn by the company for payment of taxes from out of the deposits made in the overdraft account. The sum of Rs. 1,29,151 claimed as corresponding to the monies have drawn for payment of tax falls far short of the interest that must have been paid on the monies drawn for payment of taxes. In the facts and circumstances, we consider the Tribunal was justified in coming to the conclusion that interest of Rs. 1,29,151 should be allowed under section 80V of the act. We accordingly answer the question in the affirmative, that is to say, in favour of the assessee and against the Revenue. No costs.