Commissioner of Income-tax Vs. Bakelite Hylam Ltd. - Court Judgment

Excerpt:
direct taxation - interest - section 80v of income tax act, 1961 - assessee had overdraft account and interest was allowed as deduction under section 36 - assessee invited public deposits and same was deposited in over draft bank account - money drawn out of deposits made in overdraft account for payment of taxes - assessee contended that interest on amount borrowed from deposits for payment of taxes should be allowed as deduction - held, amount for interest should be allowed as deduction under section 80v though there was no direct link between deposits being used for payment of taxes and payment of interest thereon. head note: income tax deduction under s. 80v--interest on amount borrowed for payment of taxes--payment of taxes from overdraft account continually held by the assessee company--interest allowable held: 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. the sum of rs. 1,29,151 claimed as corresponding to the monies drawn for payment of tax falls far short of the interest that must have been paid on the monies drawn for payment of taxes. the interest of rs. 1,29,151 should, therefore, be allowed under s. 80v. note- sec. 80v has been omitted by the finance act, 1985 w.e.f. 1-4-1986. income tax act 1961 s.80v - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there is no ambiguity in it. it shows that when an insurer is impleaded and has been given notice of the case, it is entitled to defend the action only on grounds enumerated in sub-section (2) of section 149 of the act, and no other grounds are available to it. the insurer is not allowed to contest the claim of the injured or heirs of the deceased on other grounds, which are available to the insured. if insurer is permitted to contest the claim on other grounds it would mean adding more grounds of contest to the insurer and will be negation of the intention of the legislature and annihilate mandate of the provisions of sections 170 and 149 of the act. the insured can pursue appeal only after giving up the insurer as the appellant and not otherwise. in the instant case, the insurer has not withdrawn from party array but has remained prosecuting the appeal with the insured on the grounds which are available only to the insured. therefore, the joint appeal as filed by the insured and the insurer is not maintainable. section 166: [v. gopala gowda & jawad rahim, jj] claim for compensation accident due to mechanical defect in the vehicle held, it is not in dispute that the claimant suffered injuries in an accident, which occurred during the course of his employment, albeit due to his negligence but law does not render him remediless. statutory right is conferred on him, accruing by virtue of his employment under insured to claim compensation under workmens compensation act. the insurer is statutorily duty bound to discharge the liability of the owner of the vehicle, to pay such compensation to the employee, as mandated under the provisions of section 149 of the act. the right of an injured employee or his dependents as the case may be to be compensated, when injury is suffered or death occurs during his employment, is recognised not only under workmens compensation act, but also under benevolent provisions under section 166 and 167 of the m.v. act. the right of driver to seek compensation is not restricted only to the workmens compensation act, it has been enlarged to enable such person to seek just compensation (sections 166 and 168), conferring upon him the right of election engrafted under section 167 of the act to choose either of the two forum. the only defence which the insurer could take is limit of its liability as enumerated under section 147 of the act, leading to contest, inter alia, only between insured and insurer and does not impact claimants right to recover the compensation determined by the tribunal which crystallizes into enforceable right against both. in the instant case, the claimant/driver has exercised right of election under section 167 of the act to seek compensation under section 166 of the act resulting in award passed by the tribunal. therefore, the insured and the insurer have no escape but to discharge the said award as directed. undisputedly, in this case as deduced for proved facts, the vehicle in question was not properly maintained by the owner and despite faulty brake system, the claimant had undertaken the hazardous journey to his peril at the behest of and at the instruction of the owner. the owner is therefore, tortfeasor. section 168: [v. gopala gowda & jawad rahim, jj] insurers limit of liability - held, it is well settled that the liability of the insurance company for payment of compensation can be statutory or contractual. is for the insurance company to show that the insurance policy was a statutory policy and not a contractual policy to restrict its liability. that issue was neither raised before the tribunal nor is raised in this appeal requiring decision. thus, if at all the insurer has any valid ground to restrict its liability, it can proceed against the insured but firstly it has to discharge the award as required under section 149 (1) of the act. where the owner/insured has failed to maintain the vehicle as per prescribed safety standards and has caused the claimant to drive the vehicle with mechanical defects, the owner would be the tortfeasor and the claimant can maintain a petition seeking compensation under the provisions of the act, instead of seeking compensation under the workmens compensation act. on facts, held, the material evidence on record, particularly, with regard to the income of the claimant, his age, medical evidence and the evidence relating to pecuniary loss has not been considered by the tribunal in the correct perspective, which has resulted in passing of the impugned award, disproportionate to the pecuniary loss and the loss of future income of the victim. the settled principles governing determination of compensation has been given a go-bye. compensation of rs.4,15,150/- awarded by the tribunal was enhanced to rs.8,20,000/-. 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.