JUDGMENT

Pattanaik, J.-This appeal by grant of certificate under Section 261 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) by the High Court of Calcutta is directed against the judgment and order of the Calcutta High Court dated 21.4.1978 in Tax Reference No. 404/75. On an application being filed before the Income Tax Appellate Tribunal under Section 256(1) of the Act the Tribunal referred the following question for being answered by the High Court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the payment of interest of Rs. 28,488/- on money borrowed for payment of income-tax was not an expenditure laid out wholly and exclusively for the purpose of business as contemplated by sub-section (1) of Section 37 of the Income-Tax Act, 1961?"

2. The assessee is a company having an overdraft account with a Bank. During the assessment year 1972-73 the assessee claimed a sum of rupees 28,488/- as an allowable expenditure under Section 37(1) of the Act, the said amount representing the interest which the assessee had to pay on the over-draft amount, the said over-draft having been made for the payment of income tax. The Income Tax Officer dis-allowed the aforesaid deduction claimed by the assessee as he was of the opinion that the payment of income-tax cannot be held to be the payment for the purpose of business. Being aggrieved by the said order the assessee preferred an appeal and the Appellate Authority agreeing with the assessing officer came to hold that the over-draft utilised for payment of tax cannot be said to be for the business purposes of the company. In coming to the aforesaid conclusion the Appellate Authority relied upon the decision of the Calcutta High Court in the case of Mannalal Ratanlal v. Commissioner of Income-tax1. The assessee then carried the matter in second appeal before the Tribunal . Before the Tribunal it was contended by the assessee that the tax liability being to the tune of couple of lakhs, if the said liability would not have been discharged then the entire business of the assessee would have been crippled and, therefore, discharge of such liability from the over-draft account would be held to be an expense for business purpose. The Tribunal, however, relying upon the decisions of the Calcutta High Court in Mannalal Ratanlal v. Commissioner of Income Tax, (supra) and Commissioner of Income-Tax v. Calcutta Landing & Shipping Co. Ltd.2, came to hold that the interest on money borrowed for payment of tax cannot be considered to be an allowable deduction in computing business profits. Having dismissed the assessee s second appeal the Tribunal on an application being made referred the question for being answered by the High Court, as already stated. The High Court of Calcutta by the impugned judgment came to the conclusion that an expenditure cannot be allowed as a business expenditure under Section 37(1) of the Act unless it was incurred or laid out directly or indirectly by an assessee wholly and exclusively for the purpose of his business. It also came to the conclusion that the payment of income-tax will not fall within the scope of expression "for the purpose of business". Relying upon the judgment of this Court in Birla Cotton Spinning & Weaving Mills Ltd.3, it came to hold that the amount paid as income-tax is not an expenditure, not even a business expenditure and, therefore, the interest paid by a trader on the money borrowed for the payment of income-tax cannot be held to be a business expenditure on any commercial principle, not even on the ground of commercial expediency. It also further held that the payment of income-tax or the interest on the borrowed money for the payment of income-tax is not at all related with the purpose and object of the business and no element of trade in its commercial sense is involved in it. With this conclusion the High Court answered the question posed in the affirmative and i