M/S. EAST INDIA PHARMACEUTICAL WORKS LTD. versus COMMISSIONER OF INCOME TAX, WEST BENGAL

Citation: [1997] 2 S.C.R. 945 · Decided: 11-03-1997 · Supreme Court of India · Bench: S.C. AGRAWAL · Disposal: Dismissed

Judgment (excerpt)

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MIS. EAST INDIA PHARMACEUTICAL WORKS LTD. 
A 
v. 
COMMISSIONER OF INCOME TAX, WEST BENGAL 
MARCH,11, 1997 .. 
[S.C. AGRAWAL AND G.B. PATTANAIK, JJ.] 
B 
Income Tax Act, 1961 : Section 37( 1). 
Income ta.>:-Business expenditure--AY 1972-73--Assessee paid interest 
on overdraft amount for payment of income tax-Assessee claiined such C 
interest as an allowable deductfon-Assessee contended that the entire profits, 
which far exceeded the income tax liability, were deposited in the overdraft 
account-lncome tax was paid out of the overdraft account-'-/(\ shbu/d be 
presumed to have been paid really out of the profits-Co~sequen.t7y, the 
interest paid on the overdraft amount should be allowed as a deduc-
tion-Held : High Court rightly held such interest to be not ·~n allowable D 
' expenditure-Such ·contention not raised before the High Court or the 
Tiibunal-flence, refused to be entertained at this stage; 
The Appellant-assessee was a company having an overdraft account 
with a Bank. During the assessment year 1972-73 the assessee claimed the E 
amount of interest paid on the overdraft amount for payment of income 
. tax· as an allowable expenditure under section 37(1) of the Income Tax Act, 
1961. The Income Tax Officer disallowed the aforesaid deduction claimed 
by the assessee. The High Court dismissed the appeal filed by the assessee. 
Hence this appeal •. 
,F 
On behalf of the appellant-assessee it was contended that the entire 
profits, which far exceeded the income ta~ liability, were deposited in the 
overdraft account; that the income tax was paid out of the overdraft . 
account; that it should have been presumed that in essence and true 
character the income tax was paid out of the profits; and that consequently G 
the interest paid by the assessee on the overdrall amount should have been 
allowed as a deduction. 
On behalf of the respondent-Revenue it was contended that the 
aforesaid contention was not raised either before the High Court or before 
the Tribunal and, therefore, the appellant's contention should not be H 
945 
946. 
SUPREME COURT REPORTS 
[1997] 2 S.C.R. 
A entertained. 
, 1 Dismissing the appeal, this Court 
HELD: 1. The High Court rightly held that the amount of interest 
paid by the assessee on the overdraft amount is not an allowable expendi· 
B tore under Settion 37(1) of the Income Tax Act, 1961. (950-F-G, 952-C] 
2. The contention that the assessee had deposited the entire profits, 
which far exceeded the income tax liability, in the overdraft account, that 
the tax was paid out of the said overdraft account, that it should have been 
presumed that in essence and true character the tax was paid out of the 
C profits and consequently the Interest paid by the assessee on the overdraft 
amount should have been allowed as a deduction is not acceptable. Such 
a contention was not raised either before the Tribunal or before the High 
Court and, therefore, cannot be entertained at this stage. 
D 
E 
[948-E-G, 950-B·DJ 
Woo/combers India Ltd. v. CIT, 134 ITR 219; Reckitt and Coleman of 
India Ltd. v. CIT, 135 ITR 698; Indian Explosives Ltd. v. CIT, 147 ITR 392 
and Alkali & Chemical Corporation of Iqdia Ltd. v. CIT, 161 ITR 820, held 
inapplicable. 
Padmavati Jaikrishna v. CIT, 166 ITR 176, relied on. 
Madhav Prasad Jatia v. CIT, (1979) 3 SCR 745; Manna/al Ratanlal v. 
CIT, 58 ITR 182; CIT v. Calcutta Landing & Shipping Co. Ltd., and CIT v. 
· · 11irla Cotton Spinning & Weaving Mills Ltd., 82 ITR 166, referred to. 
F 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1803 of 
1981. 
From the Judgment and Order dated 21.4.78 of the Calcutta High 
Court in I.T.R. No. 404 of 1975. 
G 
Dipak Bhattacharyya, Rathin Das and N. Chakraborty for the Ap· 
pellant. 
Ranbir Chandra, C. Radha Krishna, Dhruv Mehta and B. Krishna 
Prasad for the Respondent. 
H _ 
· The Judgment of the Court was delivered by 
·C 
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EAST INDIA PHARMACEUTICAL WORKS LTD. v. C.l.T. [PATTANAIK, J.] 947 
PATIANAIK, J. This appeal by grant of certificate under Section 261 A 
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 Appellate Tribunal under 
Section 256(1~ of the Act the Tribunal referred the following question for B 
being·answered by the High Court :-
"Whether, on the facts and in the circumstances of the cas

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