Calcutta H.C : Whether, in a case where an assessee has no available liquid funds at his disposal and borrows money for the purpose of payment of income-tax instead of liquidating his income-yielding assets, the interest paid on such borrowal utilised for the payment of income-tax can be allowed as a permissible deduction in computing the income of the assessee under s. 57 and/or s. 37 of the IT Act. ?

DIPAK KUMAR SEN, J.:

The applicant, L. M. Thapar, seeks a certificate from us that the judgment delivered and order passed by this Court on 28th Jan., 1985, in IT Ref. No. 1970 of 177 (sic), involves substantial questions of law and is a fit one for appeal to the Supreme Court. The substantial questions of law are stated to be as follows :

” (a) Whether, in a case where an assessee has no available liquid funds at his disposal and borrows money for the purpose of payment of income-tax instead of liquidating his income-yielding assets, the interest paid on such borrowal utilised for the payment of income-tax can be allowed as a permissible deduction in computing the income of the assessee under s. 57 and/or s. 37 of the IT Act. ?

(b) Whether, under the circumstances aforesaid, interest paid on money borrowed to make annuity deposit under Chapter XXIIA of the said Act was an allowable deduction under s. 57 and/or s. 37 of the said Act ?”

It is stated that on identical questions, a certificate for leave to appeal to the Supreme Court has been given by this Court from its judgment in M. M. Thapar vs. CITby an order dt. 6th Feb., 1979. [reported at (1978) 114 ITR 331 (Cal) : TC41R.498].

Learned advocate for the Revenue drew our attention to a subsequent decision of the Supreme Court in Smt. Padmavati Jaikrishna vs. Addl. CIT (1987) 62 CTR (SC) 14 : (1987) 166 ITR 176 (SC) : TC41R.622, where the Supreme Court affirming the decision of the Gujarat High Court in (1975) 101 ITR 153 (Guj) : TC41R.624 has held that interest paid on loans was not an admissible deduction under s. 57 of the IT Act., 1961, where amounts were borrowed to pay taxes and annuity deposit and where the assessee derived income from other sources in the shape of interest and dividends. It was submitted that as the Supreme Court has since laid down the law, it is not necessary to grant a certificate for leave to appeal in the instant case.

We note that in this case the deduction has been claimed not only under s. 57 but also under s. 36 (1)(iii) of the IT Act.. In Smt. Padmavati Jaikrishna’s case (supra), the Supreme Court did not consider the question of admissibility of the deduction of interest paid on loans where s. 36 of the IT Act., 1961, was invoked. There is a difference in the language of ss. 36 and 57. Sec 36 provided for deduction of interest paid in respect of the capital borrowed for the purpose of the business whereas in s. 57, the deduction is allowed on expenditure incurred wholly and exclusively for the purpose of earning income through other sources. The expression “purpose of business” appears to be wider in scope than the expression “purpose of earning income”. By reason of the above and in view of the fact that a certificate has been already granted on identical questions in M. M. Thapar’s case (supra), we allow this application. We certify that it is a fit case for appeal to the Supreme Court. There will be an order in terms of prayer (a). Let the order for issue of the certificate be drawn up separately. Each party to pay and bear its own costs.

SHYAMAL KUMAR SEN, J.:

I agree.

[Citation : 173 ITR 577]