Interest paid by the assessee on any sum borrowed for the payment of taxes is not deductible from his income.

( 1 ) THIS is a reference under Section 256 (1) of the Income-tax Act, 1961. The assessment year is 1971-72. The corresponding accounting period ended on September 30, 1970. The assessee had an overdraft account. Receipts were deposited in this account and payments including taxes were also made from this account.

( 2 ) THE Income-tax Officer found that part of the amount drawn from the overdraft account had been used for payment of taxes. He also found that it was not practicable to ascertain what part of the earlier receipts had been utilised for repayment of overdraft and what part had been used for payment of taxes. He noticed that the average overdraft during the year amounted to Rs. 21,09,657 and the average resources of the company to Rs. 1,41,25,226. The ratio of average overdraft to average resources worked out to 15%. Accordingly, the Income-tax Officer came to the conclusion that 15% of the total amount of taxes during the year had been paid from the overdraft. He held that the proportionate interest on the overdraft utilised for payment of taxes amounted to Rs. 20,730. He disallowed this sum of Rs. 20,730 as deductible expenditure.

( 3 ) THE matter ultimately came up before the Appellate Tribunal. The Tribunal referred to the decision of this court in Mannalal Ratanlal v. Commissioner of Income-tax [1965] 58 ITR 84 (Cal ). It was held in this case that payment of income-tax was not a part of the expenditure of an assessee. Therefore, interest paid by the assessee on any sum borrowed for the payment of taxes, is not deductible from his income. All the relevant provisions of the Act relating to deduction had been considered in this judgment. The Tribunal, on the basis of this judgment, disallowed the interest of Rs. 20,730.

( 4 ) THE following question has been referred to us :" Whether, on the facts and in the circumstances of the case, the payment of interest on the amounts utilised from the overdraft of the State Bank of India for payment of taxes was allowable as deduction in computing the total income of the assessee. "

( 5 ) WE may point out that this court's decision aforesaid has been approved by several other High Courts in India and also in a later decision of this court. The other decisions are Commissioner of Income-tax v. Indumati Ratanlal [1968] 70 ITR 353 (Guj), Dalmia Dadri Cement Ltd. v. Commissioner of Income-tax [1972] 86 ITR 577 (Punj), Madhav Pd. Jatia v. Commissioner of Income-tax , Commissioner of Income-tax v. Oriental Carpet Manufacturers (India) P. Ltd. and also Commissioner of Income-tax v. Calcutta Landing and Shipping Co. Ltd. [1970] 77 ITR 575, 583 (Cal ).

( 6 ) DR. Debi Pal, appearing for the assessee, has argued before us the following points : (1) The expression " for the purpose of business " in Section 36 (1) (iii) of the Income-tax Act, 1961, is wider in its scope than the expression " for the purpose of making or earning the profit " in Section 57 (iii) of the Act. (2) The payment of taxes and the carrying on of the business out of which income arises, are closely interlinked. The payment of taxes, therefore, is incidental to the business. (3) Advance tax is paid for preservation of business assets from the coercive process envisaged by the Income-tax Act in Sections 218, 220, 221, 222 and 226. It should, therefore, be held that payment of advance tax was made " for the purpose of business " and if advance tax had to be paid by borrowing money, interest paid on that money should be deductible under Section 36 (1) (iii ). (4) Under Section 40 (a) (i) of the Act, any interest chargeable under the Act which is payable outside India on which tax has not been paid is expressly excluded from deduction and under Section 40 (a) (ii), any sum paid on account of rate or taxes levied on the profits or gains of any business or profession or assessed at a proportion or otherwise on the basis of any such profits or gains, have also been excluded. There is no express excl