V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, has referred the following question of law : For the assessment year 1978-79 : " Whether the learned Tribunal was right in law in holding that interest on borrowed capital for the taxes paid during the previous year relevant to the assessment year 1978-79 alone has to be allowed as a deduction under section 80V of the Income-tax Act, 1961, and not for interest on borrowed capital for the earlier years utilised for payment of taxes and such borrowings remaining unpaid during the previous year relevant to the assessment year 1978-79?" For the assessment year 1979-80 : " Whether the learned Tribunal was right in law in holding that interest on borrowed capital for the taxes paid during the previous year relevant to the assessment year 1979-80 alone has to be allowed as a deduction under section 80V of the Income-tax Act, 1961, and not for interest on borrowed capital for the earlier years utilised for the payment of taxes and such borrowings remaining unpaid during the previous year relevant to the assessment year 1979-80 ?"
(2.) THE brief facts of the case are that the interest on the borrowed capital for the previous year prior to the assessment year 1978 79 was disallowed. THE Income-tax Officer was of the view that the debit balance of Rs. 1,38,591 at the beginning of the year for Diwali ending 1977 consisted of withdrawal for two purposes : (i) withdrawal pertaining to the payment of income-tax of Rs. 16,764 + Rs. 129, and (ii) balance for items other than payment of income-tax. THE credit entries were higher by Rs. 14,287 during the year and thus, in the absence of dates in respect of the entries of incomings and outgoings, the estimate of Rs. 5,000 was made, which was considered as the amount for payment of taxes and interest of Rs. 600 thereon was allowed under section 80V. THE Commissioner of Income-tax (Appeals) came to the conclusion that the said figure should be Rs. 14,030 instead of Rs. 5,000 and interest of Rs. 1,680 will be allowable under Section 80V instead of Rs. 600. THE figure of Rs. 14,030 was calculated on the basis that, at the end of accounting year, the figure was Rs. 6,887 and at the beginning of the year, it was Rs. 21,174 and, therefore, the average was taken at Rs. 14,030. THE Income-tax Appellate Tribunal came to the conclusion that the interest on the borrowings made during the accounting period relevant to the assessment year 1978-79 has already been allowed. THE Tribunal was of the view that the interest on borrowed capital for payment of tax during the relevant previous year has to be allowed as deduction while computing the income of the assessee and not for the earlier years. For the assessment year 1979-80, it was held that most of the withdrawals during the year were for the personal use of the assessee. From a perusal of Section 80V of the Income-tax Act, 1961, it is clear that the deduction of any interest paid by the assessee in the previous year on the money borrowed for payment of tax due under this Act is allowable. The payment of interest must be in the previous year. A question arises as to whether money should be borrowed for payment of tax in that year or even the money which has been borrowed in the previous year and has still not been repaid, whether interest on such borrowings can be disallowed. The Income-tax Appellate Tribunal held that the interest paid on the borrowings made during the year is the only permissible deduction and not on the brought forward balances pertaining to payment of taxes in earlier years. On a plain reading of the provisions of Section 80V of the Act, it is clear that the deduction of interest paid during the previous year on any money borrowed for payment of any tax is allowable. The money is borrowed once, but liability for payment of interest remains till the borrowed money is returned. The only condition in the section is that there must be actual payment of interest and that the money should be borrowed for the payment of tax. If the assessee is in a position to satisfy that the money has been borrowed for payment of tax, then the payment of interest thereon shall be allowed. If the said amount remains outstanding during the relevant previous assessment year and, on that account, the interest is paid in the succeeding assessment year, then the deduction cannot be disallowed for the reason that money was not borrowed during that succeeding year. On the basis of the above discussion, we are of the opinion that the borrowings in the previous years which have been utilised for making payment of taxes and outstanding as on the first day of the accounting year, on which the interest has been actually paid during the relevant previous year, will be entitled to deduction under Section 80V of the Act.
(3.) ACCORDINGLY, both the references are answered in favour of the assessee and against the Revenue by holding that in respect of the amount outstanding as on the first day of the accounting year of the previous year, which pertains to the payment of taxes, the interest actually paid during the relevant assessment years thereon will be allowable. No order as to costs.;