Sabyasachi Mukharji J.

1. In this reference u/s 256(1) of the I.T. Act, 1961, the following question has been referred to this court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that a part of the interest amounting to Rs. 6,769 paid by the assessee on bank overdraft account as relatable to payment of advance tax was not an admissible deduction in the computation of the assessees business income "

2. This reference arises in respect of the assessment year 1970-71, for which the relevant previous year ended on 31st of December, 1969.

3. The assessee had an overdraft account with the bank, On 12th December, 1969, i.e., a few days before the end of the assessees accounting year on 31st December, 1969, the account showed a debit balance of Rs. 1,39,412. The assessee paid an advance tax of Rs. 18,05,000 on 15th December, 1969, which increased the overdraft to Rs. 14,63,593 by 31st December, 1969. The ITO holding that the payment of advance tax could not be treated as business expense disallowed the proportionate interest amounting to Rs. 6,769 payable by the assessee to the bank.

4. The assessee, being aggrieved by the aforesaid order, went up in appeal before the AAC. In view of the contentions raised before us, it would be necessary to refer to the order of the AAC. He observed, inter alia, as follows:

" Shree Venkatratnam pointed out that the years profit, prior to payment of taxes, was Rs. 27 lakhs. The previous year being the year ended 31st December, 1969, the learned counsel argued that almost the entire profit had gone into appellants bank account by 15th December, 1969, and thus the advance tax was met out of business profits and not out of the companys overdraft account. The learned counsel further argued that the bank account was continuously operated for all financial transactions, in which were embedded the income earnings of the company, and the income was always higher than the tax payments made during the year. Since the advance tax was paid out of the net cash available in business, he argued, there was no justification to assume that the payment of tax was out of overdraft.

On 12th December, 1969, the balance in overdraft account was Rs. 1,39,412. By 31st December, 1969, the balance had shot up to Rs. 14,63,593 and this increase was solely on account of advance tax payment of Rs. 18,05,000 on 15th December, 1969. I could not find any material to support Shree Venkatratnams argument that this payment was out of net cash available in business. No doubt the profits of the business were embedded in the combined financial transactions but at the time of payment of advance tax, the appellant had no adequate cash surplus and the company had resorted to the overdraft specifically for this purpose. Therefore, theO was quite justified in disallowing proportionate interest. The addition of Rs. 6,769 is upheld. "

5. The assessee, being aggrieved, went on further appeal before the Tribunal. After setting out the rival contentions the Tribunal observed that the one contention related to the disallowance of the part of the interest paid by the assessee on the overdraft account with the bank. The Tribunal noted that the assessee was running an overdraft account with the bank. Before the Tribunal, learned advocate for the assessee repeated the arguments which he had placed before the AAC. He also invited the attention of the Tribunal to the decision dated January 2, 1974, in the case of Duncan Brothers & Co. Ltd. (I.T.A. Nos. 5484 & 5485(Cal)/72-73 relating to the assessment years 1968-69 and 1969-70) in which on somewhat similar facts it was held that the disallowance of proportionate interest by theO was not justified. Learned advocate invited the Tribunal to follow the aforesaid order of the Tribunal and submitted that the claim of the assessee should be accepted. On the other hand, reliance was placed by the revenue on the decision of the Calcutta High Court in the case of MANNALAL RATANLAL Vs. COMMISSIONER OF Income Tax, CALCUTTA., , and also reference was made to the decisions in the case of M.M. Thapar Vs. Commissioner of Income Tax, .

6. The Tribunal was of the view that if the assessee would have kept a separate account for the payment of taxes, then a higher amount of interest on its overdraft account taken for purpose of its business would have been allowed. The Tribunal observed that it was not concerned with what the assessee could have done but it was concerned with what the assessee had actually done. The Tribunal took into account the fact that the AAC had pointed out that the advance tax had been paid by increasing the amount of overdraft on 15th December, 1969. In the opinion of the Tribunal the assessee could not, therefore, take the plea that the taxes had been paid out of the business profits put in the bank and that the overdraft had actually been utilised for the purpose of the business. That, as pointed out above, is not a finding of the AAC who, as a fact, found otherwise. The Tribunal observed that once it was held that the taxes had been paid from the borrowings from the bank, the aforesaid decision of the Calcutta High Court, viz., the decision in the case of MANNALAL RATANLAL Vs. COMMISSIONER OF Income Tax, CALCUTTA., , would be applicable and would not have been treated as a business expenditure.

7. The Tribunal, therefore, analysed the facts of Commissioner of Income Tax Vs. Tingri Tea Company Ltd., , and in that background the Tribunal upheld the order of the AAC. Before we proceed further, it was indisputable that there were certain basic facts, as noted by the AAC in para. 5, that its entire profit of about Rs. 27,00,000 for the year under appeal had been banked by 15th December, 1969, and the entire amount of the profits had not been deposited in the bank overdraft account by 15th of December, 1969, and advance was taken of the business profits for business purposes as well as for payment of the Income Tax (sic).

8. On these facts two contentions were sought to be urged in respect of the question before us. It was urged that where the profits of the asses-sees business was sufficient to cover the payment of advance tax during the accounting year if such amount was paid from an account which included the amount of the profits as well as the overdraft taken for the purpose of the business, the presumption was that the tax was paid out of the profits and not out of the overdraft.

9. In the background of this submission learned advocate for the assessee sought to urge that in this case the amount of profits far exceeded the liability for the advance tax and the entirety of the profits of Rs. 27,00,000 having been deposited in that account which was maintained with the bank was the overdraft account out of which the bank remitted the advance as well as profits of the business were made to accrue (sic). Presumption was that the tax was paid out of the earning of the profits and not (out) of the overdraft taken for the other business purposes.

10. In support of this contention reliance was placed on the ratio of the observations of a Bench decision of the Madras High Court in the case of V.V.R. Firm Vs. The Commissioner of Income Tax, . The court was considering Section 4(2) of the Indian I.T. Act, 1922. There what happened was that the assessee, a Nattukottai Chetty firm, carrying on banking business in Rangoon and Saigon (outside British India) with headquarters at Karaikudi, received in Rangoon a sum of Rs. one lakh from their agent in Saigon instructed from headquarters to borrow and remit that amount to Rangoon business to be repaid by the Rangoon business within one month. The remitted sum was made up of $ 59,000 borrowed from others and outstanding loans realised. On an assessment of the remitted sum u/s 4(2) of the I.T. Act as remittance of foreign profits, it was contended that the borrowed sum of $ 59,000 was not assessable. It was found that the business at Saigon had considerable accumulated profits more than sufficient to cover the remittance and that it had repaid the whole of the borrowed amount within 28 days from funds there without having to wait for the return of the money from Rangoon and it was, in those circumstances, held that the remittance was from profits and not capital.

11. Applying the ratio of the aforesaid decision learned advocate for the assessee sought to urge that in this case such profits for the year in question far exceeded the liability for advance tax. The presumption would be that the taxes were paid out of the earnings of the profits made by the firm for the year and not of the overdraft account standing as such though the amount of money was put in the overdraft account.

12. For the same proposition reliance was placed on the decision of the Madras High Court in the case of COMMISSIONER OF INCOME TAX, MADRAS Vs. NADIMUTHU PILLAI., . There the assessee who had income from property and other sources in British India owned certain valuable house property in Saigon outside British India. He had a current account with a bank in Saigon which showed an overdraft of $20,149 on 1st of April, 1935, and an overdraft of $12,165 on the 30th November, 1935. In December, 1935, a further sum of $5,719 was withdrawn from the bank and remitted to British India. The accounts showed that between 1st April, 1935, and 1st December, 1935, the assessee had received a net income of $10,184 from the Saigon properties, total net income for the year 1935-36 being $18,414. The I.T. authorities of India included in the assessable income for the year 1935-36 the amount of $5,719 remitted to India, treating it as a remittance of foreign profits of the year 1935-36. It was found that after 7th December, payments to the extent of $11,570 were made to the bank and the overdraft amount stood at $9,441 at the end of the financial year 1935-36. It was further found that in 1933-34, the assessee had received a remittance of $8,000 from Saigon through his bankers and out of this only $1,680 had been taxed in 1934-35 as remittance of profit. The assessee contended that inasmuch as the Saigon income was paid to the bank to reduce his overdraft and throughout the year his overdraft had continued, the remittance of $5,719 was out of a loan from the bank and not remittance of profits. It was held that in the circumstances the sum of $5,719 was properly assessed u/s 4(2) of the Indian I.T. Act, 1922, as it stood at the relevant time as a receipt of foreign income in British India. Chief Justice Leach observed that the payments into account from the Saigon profits should not be treated as a separate transaction and regarded in toto as payments in reduction of the overdraft but the accounts must be examined as a whole and if this was done the remittance could not be treated merely as a remittance of the proceeds of a loan. Mr. Justice Krishnaswamy Ayyangar, concurring with this conclusion, observed that the balance of $6,320 of the remittance of 1933-34 was wiped out by the revenue receipts of 1935-36 and this was automatically turned into a remittance from an income source though in its origin it was from a capital source. The income of 1935-36 was sufficient to discharge the whole of the balance and to the extent of the whole of the remittance sought to be taxed, and on this ground the remittance of $5,719 could be treated as a remittance of profits. But for these additional facts this sum could not be treated as a remittance of profits.

13. The same view was echoed in a different context in the case of Fellowes-Gordon v. IRC [1935] 19 TC 683 . There the appellant, who had plantations in Ceylon, where he ordinarily resided, visited the United Kingdom for a period of at least six months during each of the years 1927-28 and 1930-31 and was accordingly chargeable to Income Tax for those years as a person residing in the United Kingdom. During his absence from Ceylon his plantations were managed, under a power-of-attorney, by his agents in Colombo, who received the income and paid the expenses in connection with the plantations. Certain sums were remitted by his agents in 1927-28 and 1930-31 to the credit of his account at a bank in London. The appellants account with his bank in Colombo was continuously overdrawn during the periods of his visits to the United Kingdom and at the date of each of the remittances made to him by his agents his account in their books showed a debit balance, which, however, fluctuated constantly throughout the material periods. No particulars Were furnished of the income arising from his possessions in Ceylon but it was not denied that it was substantial in amount, and it was not suggested that the reductions shown from time to time in the debit balances in the agents books were not the result of receipts on revenue account. On appeal against assessments under Case V of Schedule D for the years 1927-28 and 1930-31 based on the amounts remitted to the United Kingdom in those years, the appellant contended that these amounts were advances of capital or loans made by his agents and that it was not material from what source the advances were repaid. The Special Commissioners held that the mere fact that the appellants accounts with his agents and his bank in Ceylon were overdrawn at the time when the remittances were made was not sufficient to show that such remittances were capital and they concluded on the information before them that the sums received by him from Ceylon were income arising from his possessions there. It was held that the Special Commissioners were entitled on the evidence before them to hold that the sums received by the appellant from Ceylon were remittances of income and were accordingly assessable to Income Tax under Case V of Schedule D.

14. Lord President Normand put the principles as follows (p. 690):

" It is suggested that the mere existence of an overdraft precludes his liability to tax on the ground that any money paid out of an overdraft and remitted to this country is the money of the lender and not of the recipient. Learned counsel for the appellant did not hesitate to say that that would apply although there was a very large income in Ceylon, and an overdraft was specially arranged for the purpose of bringing this alleged principle into play. I am quite unable to accept that proposition. A man may have an income in Ceylon and may receive remittances of that income in this country through an account in which he is debtor during the whole period in which the remittances are made. There is no difference between income arising from Ceylon and income arising from this country in that respect. A man may have an income and still be in debt, and the amount of his income may be remitted to him through the hands of his creditor. I can see nothing in the case of Kneen v. Martin [1934] 19 TC 33 which is in any way inconsistent with what I have just said. It is perfectly true that it may not be sufficient to say that you had an income in Ceylon and you have received remittances of less amount than that income in this country. But here the reasonable inference is that what was received in this country was not derived from some realisation of capital or from some capital account, but was in truth derived from the income arising from possessions in Ceylon, and I think that the Commissioners, on the facts of the case, were entitled to arrive at the conclusion at which they did arrive, and that the appeal should be dismissed. "

15. To this effect was the view expressed by the Division Bench of this court in the case of Commissioner of Income Tax Vs. Tingri Tea Company Ltd., . There the assessee, a sterling company, owned tea gardens in India. As a nonresident company, it had remitted profits from time to time to the United Kingdom for the purpose of declaration of dividends to its shareholders and the surplus balance after paying dividends was kept with the bank in the United Kingdom as deposits. During the relevant accounting years the assessee-company paid interest accruing on its overdrafts to the banks in India and the assessee claimed deduction of the amounts paid as interest paid on money borrowed for the purpose of its business. The ITO rejected the claim for each of the aforesaid years on the ground that the overdrafts from the banks were not incurred wholly and exclusively for the assessees business. The AAC found that the assessee-company made remittances to the United Kingdom by taking overdrafts from the banks in India and the borrowings from the banks in India were partly invested in earning interest income in the United Kingdom. He sustained a disallowance of Rs. 18,920 for the assessment year 1958-59 and also maintained in full the disallowance by theO of the claims for interest for the other years. The Tribunal was of the opinion that on the facts the correct way to interpret the transaction would be that the remittances to the United Kingdom came out of the profits earned in India and that the bank overdrafts in India had in fact been utilised in carrying on the assessees business and the I.T. authorities were not justified in disallowing any part of the bank interest paid by the assessee in India on its bank overdraft. In this connection, reference may be made to the observations of the court at p. 299. The court has observed as follows :

" The Tribunal, therefore, in our view, correctly observes that the profits of each year of the assessee cannot promptly be remitted to the U.K. because of the time lag for obtaining permission of the Reserve Bank of India and the ready availability of funds because the profits as and when earned were ploughed back into the business itself and could not be readily withdrawn unless replaced by borrowed capital. That is exactly what has happened in this case. It is on that basis the Tribunal correctly interprets the facts to observe that these remittances to the United Kingdom in essence, in substance and in the ultimate analysis came only out of profits earned in India and it was for that purpose that the bank overdrafts in India, in fact, were utilised to carry on the assessees business. It is difficult to read the facts in any other way."

16. And having regard to the facts, in our opinion, it appears from the facts that the profits were sufficient to meet the advance tax liability. The profits were deposited with the overdraft account. It should be presumed that in its essence and true character the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. In this connection, learned advocate for the revenue sought to urge before us that this contention, that is to say, when there was a mixed account and the profits were sufficient to meet the tax liability from the said account then the presumption should not be drawn that the tax liability was met out of the overdraft and not out of the profit, was not agitated before the Tribunal. He sought to urge that if the point was not urged before the Tribunal, then such a contention should not be allowed to be agitated for the first time before this court. We have set out hereinbefore the relevant contentions before the AAC which were noted by the Tribunal. It may, in this connection, be worthwhile to repeat this contention as recorded in the order of the Tribunal:

" We are not concerned with what the assessee would have done but we are concerned with what the assessee has actually done. The Appellate Assistant Commissioner had clearly pointed out that the advance tax had been paid by increasing the amount of overdraft on 15th December, 1969. The assessee cannot, therefore, take the plea that the taxes had been paid out of the business profits put in the bank and that the overdraft had actually been utilised for the purpose of the business. That, as pointed out above, is not a finding of the AAC who, as a fact, found otherwise. Once we hold that the taxes had been paid out of borrowings from the bank, the conclusion is obvious, following the aforesaid decision of the Calcutta High Court, that the payment of interest cannot be treated as business expenditure. "

17. It is apparent, therefore, that this contention was urged before the authorities below and, therefore, in view of the amplitude of the question posed before this court it cannot be said that this contention was not urged before the authorities below. In aid of his submission that the contention not urged before the authorities below should not be allowed to be urged, he drew our attention to several decisions. It is not necessary to examine this question further. We are in agreement with learned advocate for the revenue that if a contention had not been urged then such a contention cannot be agitated, for the first time, before the High Court in a reference. Our attention was drawn to the decision in the case of COMMISSIONER OF Income Tax, WEST BENGAL Vs. STATE BANK OF INDIA., , where the Division Bench reiterated that the practice of the Calcutta High Court had always been to limit the party, at whose instance the reference had been made, to the points raised and canvassed before the Tribunal. New grounds not taken before the Tribunal would not be allowed to be urged even though the question was framed in a general form which might comprise all possible contentions to which the terms of the relevant section might give rise. Having regard to the orders and the contention of (the assessee before) the authorities below and the findings noted therein, it is not possible to accept the factual basis of this argument urged on behalf of the revenue. To the similar effect are the observations of the Supreme Court in the case of Commissioner of Income Tax, Bihar and Orissa Vs. Kirkend Coal Co., . Our attention was also drawn to the decision in the case of Commissioner of Income Tax Vs. Calcutta Landing and Shipping Co. Ltd., . There, the assessee had agreed to pay a firm of chartered accountants a consolidated sum of Rs. 26,000 per year for 12 years for settling each years assessment irrespective of whether there was an appeal or not in respect of any particular year. A sum of Rs. 8,000 was paid for the preceding year for the fees. The department for the 4 years allowed this amount. The assessee claimed the balance of Rs. 16,000 which it had paid to the firm under the agreement as an allowance u/s 10(2)(xv) of the Indian I.T. Act, 1922. The ITO held that as the firm had not only appeared before theO but also appealed to the AAC and the Tribunal, the amount of Rs. 8,000 could be estimated as apportionable fees payable for appearing in the appeal proceedings. He held that this amount of Rs. 8,000 was not allowable as a deduction and added the amount back. The Tribunal held that the entire amount claimed was allowable. It was held in reference that though the expenditure incurred for conducting the proceedings before the I.T. authorities might not have apparently related to the assessees trading activities they might justifiably be necessary for increasing the assessees net profits for the carrying on of the business with larger funds at the disposal of the assessee. From this point of view such expenditure were expenses " for the purpose of the business" in the wider sense and the entire sum of Rs. 16,000 paid by the assessee as professional fees to its tax consultants was an allowable deduction u/s 10(2)(xv) of the Indian I.T. Act, 1922. There, at p. 58 of the report, the Division Bench had observed that the payment of Income Tax was not an expenditure for the purpose of earning profit. It was, on the contrary, a case of application of profits after these had been earned and not an expenditure necessary to earn such profits. Reliance in this connection was placed on a prior decision, in the case of MANNALAL RATANLAL Vs. COMMISSIONER OF Income Tax, CALCUTTA., , on which the Tribunal in the instant case had relied. This relates to the other aspect of the matter. In this connection, we must observe that learned advocate for the assessee had contended that even if the amount of tax had been paid from the overdraft taken from the business, the interest attributable to that amount of the overdraft should not be allowed as deduction was not correct. It was urged by the learned advocate for the assessee that the Income Tax was a liability which had to be discharged in carrying out its business activities and on commercial principles it should be allowed. An interest on that amount should also necessarily be allowed. He drew our attention in this connection to several decisions of the Supreme Court as well as of the English courts to emphasise his point that without payment of Income Tax it was not possible for the assessee to carry on its business and, therefore, if the payment of Income Tax even if it was not an expenditure incurred for earning the profit it was certainly an expenditure incurred for the purpose of earning the profit in the sense that it was necessary to incur the expenditure for carrying on the business. It, however, appears to us that in view of the decision of the Calcutta High Court in the case of MANNALAL RATANLAL Vs. COMMISSIONER OF Income Tax, CALCUTTA., it may not be desirable for us to express any opinion on this aspect of the matter. In that decision, an expenditure to become an allowable deduction, it was held, against the income, must be incurred in the earning of the income or profit. The Income Tax, it was observed, was not a part of the expenditure of an assessee and, therefore, interest that was paid by the assessee on any sum borrowed by him for payment of Income Tax was not deductible from his net income. The assessee, in that case, had borrowed money in the assessment year for paying the Income Tax in respect of the assessment of the previous year and paid Rs. 1,934 for interest on that loan which he had claimed to deduct from his total income in the assessment year. The assessee contended that if he had not borrowed the money, he would have been compelled to liquidate a part of his income-yielding asset and the borrowing was for the purpose of maintaining the income-yielding asset and, therefore, there was a direct or indirect connection between the income and the expenditure. The revenue held against the assessee. It was held by this court on a reference that there was no provision in the I.T. Act where a deduction of that nature had been contemplated and the amount was not deductible in computing the assessees income. It was for the assessee to prove that there was some statutory provision under which the claim could be allowed. Learned advocate for the assessee submitted that this proposition required re-examination. It must be stated also in all fairness to him that he did not say that the decision in the case of MANNALAL RATANLAL Vs. COMMISSIONER OF Income Tax, CALCUTTA., was not good law but what he submitted was that in view of the subsequent pronouncements of the Supreme Court, perhaps, the matter could be, and according to him, should be looked at from a different point of view. His main point was that though, on commercial principles, this payment of Income Tax should be an allowable deduction, it was not so because of the express provision of Section 40(a)(ii) which enjoined that, notwithstanding anything to the contrary in Sections 30 to 39, in computing the total income of an assessee, any sum paid on account of any rate or tax 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, should not be allowed as deduction. He, therefore, submitted that though normally Income Tax would have been an allowable deduction on the basis of commercial principles, in view of the express prohibition u/s 40(a)(ii) of the I.T. Act, 1961, the deduction on account of tax paid could not be levied. He, in these circumstances, urged that such a provision under Clause (ii) of Section 40(a) should be strictly construed and it should only be limited to deductions in respect of actual tax paid and should not be so construed so as to include any incidental expenses for procuring that payment, viz., interest, etc. A deduction which was commercially permissible was prohibited by a provision of a statute and, according to him, very strictly construed and in favour of the assessee. While there is a good deal of force in that argument, it is also to be borne in mind that in the construction of a statute, the construction should not be so made as to make a provision ineffective or lead to an anomaly. From one point of view if the direct payment of tax was not deductible, anything incidental to that payment, if it was allowed might lead to anomalies. Therefore, there are these two views on this aspect of the matter. Learned advocate for the assessee drew our attention in this connection to the decision of the Supreme Court in the case of Kesoram Industries and Cotton Mills Ltd. Vs. Commissioner of Wealth Tax, (Central) Calcutta, in aid of his submission that the decision in the case of MANNALAL RATANLAL Vs. COMMISSIONER OF Income Tax, CALCUTTA., required reconsideration. He also referred to the decision in the case of The Indian Aluminium Co. Ltd. Vs. The Commissioner of Income Tax , West Bengal, Calcutta, in aid of Ms same proposition. Reliance was also placed on the observations in the case of Commissioner of Income Tax, Kerala Vs. Malayalam Plantation Ltd., . Reliance was also placed on the decision in the case of Commissioner of Income Tax, West Bengal I Vs. Birla Cotton Spinning and Weaving Mills Ltd., and he particularly stressed that the Supreme Court had observed that the earning of profits and the payment of tax were not isolated and independent activities of a business. These activities were continuous and took place from year to year and during the whole period for which the business continued. Therefore, the expenditure which was incurred by the assessee in opposing a coercive Government action resulted in saving taxation and safeguarding his business, was a justifiable expenditure in commercial expediency. Reliance was also placed on the decision of the Patna High Court in the case of MAHARAJADHIRAJ SIR KAMESHWAR SINGH Vs. COMMISSIONER OF Income Tax, PATNA., , where the Patna High Court held that interest on money borrowed for payment of tax was not a legitimate deduction in computing the business profit. But this observation, as noted in the headnote, according to the learned advocate for the assessee, was not the correct basis for the decision. Our attention was also drawn to the decision in the case of India Cements Ltd. Vs. Commissioner of Income Tax, Madras, and the learned advocate drew our attention to the observations at p. 58 of the report. Reliance was also placed on the decision of the Supreme Court in the case BOMBAY STEAM NAVIGATION CO. (1953) PRIVATE LTD. Vs. COMMISSIONER OF Income Tax, BOMBAY., and he drew our attention to the observations of the court at p. 59, where the court emphasised that whether a particular expenditure was a revenue expenditure incurred for the purpose of business must be determined on a consideration of the circumstances of the case and by the application of the principles of commercial expediency and the question must be viewed in the larger context of business necessity or expediency. If the outgoing or the expenditure was so related to the carrying on or the conduct of the business, that might be regarded as an integral part of the profit earning process and not for the acquisition of an asset or a right of a permanent character, the possession of which was a condition of the carrying on of the business, the expenditure might be regarded as revenue expenditure.

18. Our attention was also drawn to the decision in the case of Dehradun Tea Co. Ltd. and Another Vs. The Commissioner of Income Tax, U.P., , where it was held that the tax paid by the appellant-tea companies on their tea garden lands under the U.P. Large Land Holdings Tax Act, 1957, was deductible u/s 10(2)(xv) of the Indian I.T. Act, 1922, in computing their business income. It was further held that the tax under the U.P. Large Land Holdings Tax Act, 1957, was not a wealth-tax or any of the other taxes referred to in the Explanation to Sub-clause (ii) inserted in Section 40(a) of the I.T, Act, 1961, by Section 2 of the I.T. (Amend.) Act, 1972. Reliance was placed on these observations in aid of the proposition that Section 40(a)(ii-a) should be strictly construed not to include payment instead of incidental expenses of taxes.

19. Our attention was also drawn to the observations in the case of IRC v. Hinchy [1960] 38 TC 625 and reliance was placed on the observations of Lord Chancellor at p. 646, as well as the observations of Lord Reid at p. 649.

20. We are of the opinion that these considerations are certainly very substantial considerations. Our attention was also drawn to the decision in the case of IRC v. G. B. Bates [1966] 44 TC 225 and reliance was placed on the observations at pp. 265 and 268.

21. As we have mentioned before, these considerations would have required serious consideration and these are weighty considerations aud we cannot say that these are without substance. But we find in the decision of this court in the case of East India Pharmaceutical Works Ltd. Vs. Commissioner of Income Tax, , this precise question was canvassed and it was observed, having regard to the statutory mandate in Section 40(a)(ii) of the Act, that in computing the income chargeable under the head "Profits and gains of business or profession", any sum paid on account of the tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits and gains should not be deducted, no commercial principle whatsoever could make it a deductible expenditure u/s 37(1) of the. It was further held that since the amount paid as Income Tax was not an expenditure at all, not even a business expenditure, the interest paid by a trader on the money borrowed for the payment of Income Tax could not be a business expenditure on any commercial principle, not even on the ground of commercial expediency. Many of the decisions referred to us as indicated before were also considered by the Division Bench in the aforesaid judgment. In that view of the matter and in the view we have taken on the first aspect of the argument advanced before us, it is not necessary for us to express any opinion on this question.

22. We may also note that the Supreme Court in the case of Madhav Prasad Jatia v. CIT [1919] 118 ITR 200, noted that the expression "for the purpose of business" occurring in Section 10(2)(iii) as also in Section 10(2)(xv) was wider in scope than the expression " for the purpose of earning income, profits or gains " occurring in Section 12(2) of the Act, and, therefore, the scope for allowing a deduction u/s 10(2)(iii) or Section 10(2)(xv) would be much wider than the one available u/s 12(2) of the.

23. Learned advocate for the revenue also drew our attention to a certain decision in the case of Bestobell (India) Ltd. Vs. Commissioner of Income Tax, . He sought to urge that the Division Bench of this court in that decision also held that the interest was not allowable. On the other hand, learned advocate for the revenue sought to urge that on this aspect the court did not express any opinion. Be that as it may, as we have indicated before, it is not necessary, in our opinion, to express any final conclusion on this aspect of the matter, in the view we have taken on the first aspect of the matter.

24. Before we close, we must also note that the Division Bench of this court expressed certain observations in the case of M.M. Thapar Vs. Commissioner of Income Tax, , where it was held that the interest paid on borrowings utilised for payment of annuity deposit was not liable as deduction u/s 57 of the in computing the total income of the assessee. In the view we have taken on the other aspect of the matter, it is not necessary to examine this aspect any further.

25. In that view of the matter and having regard to our view expressed on the first aspect, as we have mentioned before, we cannot uphold the decision of the Tribunal on that ground and answer the question in the negative and in favour of the assessee.

26. In the facts and circumstances of the case, the parties will pay and bear their own costs.

Sudhindra Mohan Guha, J.

27. I agree