Pattanaik, J. - (1.) 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 Appellant 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. Commr. of Income Tax, (1965) 58 ITR 84. 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. Commr. of Income Tax, (1965) 58 ITR 84 and Commr. of Income Tax v. Calcutta Landing and Shipping Co. Ltd., 77 ITR 575, 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 assessees 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 and Weaving Mills ltd., 82 ITR 166 , 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 in favour of the Revenue and against the assessee and thus this appeal.
(3.) Mr. Deepak Bhattacharyya, learned counsel appearing for the appellant argued with vehemence that the assessee having deposited the entire profits in the over-draft account and the amount thus deposited in the over-draft account being much more compared to the income-tax liability and the tax paid, it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the over-draft account for the running of the business. Consequently the interest paid by the assessee on the over-draft account relatable to the payment of income-tax should have been allowed as an admissible deduction in the computation of the assessees business income. In support of this contention the learned counsel appearing for the appellant relied upon the decisions of the Calcutta High Court in Woolcombers of India Ltd. v. Commr. of Income-tax (Central), Calcutta 134 ITR 219, Reckitt and Colman of India Ltd. v. Commr. of Income Tax, 135 ITR 698, Indian Explosives Ltd. v. Commr. of Income-tax, West Bengal-II Calcutta 147 ITR 392 and Alkali and Chemical Corporation of India Ltd. v. Commr. of Income Tax, 161 ITR 820. The learned counsel also urged that these decisions having been allowed to be operative for more than 14 years, the principle of stare decisis should be made applicable and, therefore, it must be held that the High Court committed error in not accepting the assessees contention. The learned counsel also placed before us a schedule appended to the assessment order to indicate that the amount of receipts deposited in the over-draft account was much more compared to the tax paid, for the purpose of raising the presumption that the said payment was out of the profit, in the light of the observations made by the Calcutta High Court in the four decisions referred to supra, the learned counsel appearing for the Revenue on the other hand contended that this contention as raised by the counsel for the assessee had infact not been raised either before the High Court or before the Tribunal and, as such this question never arose out of the order of the Tribunal. According to the learned counsel for the Revenue the question referred to be the Tribunal to the High Court under Section 256(1) of the Act was merely relatable to an interpretation of Section 37 (1) of the Act and whether the interest paid on the money borrowed for payment of income-tax can be held to be an expenditure allowable in computing the income-tax under Section 37(1) of the Act, The learned counsel further urged that in view of the decision of this Court in the case of Madhav Prasad Jatia v. Commr. of Income Tax, U. P. Lucknow (1979) 3 SCR 745) as well as the decision of this Court in the case of Smt. Padmavati Jaikrishna v. Addl. Commr. of Income Tax, Gujarat 166 ITR 176 no deduction can be claimed by an assessee in respect of the interest on borrowed capital made for discharge of the income-tax liability. According to the learned counsel the liability for payment of income-tax is a personal one and payment thereof is not to earn income but to meet the statutory liability and, therefore, the expenditure thus incurred cannot be held to be wholly and exclusively for the purpose of earing income within the ambit of Section 57(iii) of the Act,;