JUDGMENT
B.P. Saraf, J.
1. By this reference under Section 256(1) of the Income-tax Act, 1961 (for short “the Act”), at the instance of the assessee, the Income-tax Appellate Tribunal (the “Tribunal”), has referred the following question of law to this court for opinion :
“Whether, on the facts and in the circumstances of the case, the assessee is entitled to deduction of interest of Rs. 76,182 for the assessment year 1977-78, Rs. 95,762 for the assessment year 1978-79 and Rs. 99,309 for the assessment year 1979-80 under Section 80V of the Income-tax Act ?”
2. The material facts of the case giving rise to this reference are as follows :
The assessee is an individual whose main source of income is remuneration from Hoosein Metal Rolling Mills P. Ltd., income from dividends and director’s fees. This reference pertains to the assessment years 1977-78, 1978-79 and 1979-80. The controversy in all these three years is regarding the allowability of interest under Section 80V of the Act on moneys borrowed by the assessee. Admittedly, the moneys were borrowed by the assessee for repayment of interest-free loans obtained by the assessee between the years 1961 to 1970 for payment of income-tax. The assessee claimed deduction of the amount of interest paid by him in the computation of his income under Section 80V of the Act. This claim of the assessee was rejected by the Income-tax Officer on the ground that the claim of the assessee for deduction of interest on such loan was not permissible under Section 80V of the Act because the interest claimed by the assessee was not interest paid on moneys borrowed by the assessee for payment of any tax due under the Act. The order of the Income-tax Officer was affirmed by the Commissioner of Income-tax (Appeals) as also by the Tribunal. Hence, this reference at the instance of the assessee.
3. Mrs. S. Garg, learned counsel for the assessee, submits that as the amount on which interest was paid by the assessee during the relevant three years had been borrowed by the assessee for repayment of the loans raised earlier between the years 1961 to 1970 for payment of income-tax, the assessee is entitled to deduction of the same in computing his total income under Section 80V of the Act.
4. We have carefully considered the above submission of Mrs. Garg, learned counsel for the assessee. Section 80V of the Act was inserted in the Act by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, to provide for deduction of interest on any money borrowed for payment of any tax under the Act. It reads :
“80V. Deduction of interest on moneys borrowed to pay taxes.–In computing the total income of an assessee, there shall be allowed by way
of deduction any interest paid by him in the previous year on any money borrowed for the payment of any tax due from him under this
Act.”
5. It was deleted by the Finance Act, 1985, with effect from April 1, 1986. This section is, therefore, applicable in relation to the assessment years 1976-77 to 1985-86. It is clear from a plain reading of this section that the benefit of this section is available only in respect of interest paid by the assessee in the previous year on any money borrowed “for the payment of any tax due from him under this Act.” The object of the enactment of this provision is to encourage taxpayers to pay their taxes promptly even by borrowing. The benefit of this provision is not available in respect of interest paid on any money borrowed by the assessee for repaying the money borrowed by him earlier interest-free for payment of income-tax. In the instant case, the assessee had borrowed some money during the years 1961 to 1970 by way of interest-free loan for payment of income-tax. No interest was payable on the money so borrowed by the assessee for payment of income-tax. The loan obtained by the assessee during the previous year relevant to the assessment year 1976-77 was for the purpose of repaying the loans obtained earlier. The assessee claims deduction of the interest paid on such loans under Section 80V of the Act. The Tribunal rejected the claim of the assessee on the ground that such interest was not covered by the provisions of Section 80V of the Act. We are in agreement with the decision of the Tribunal. We are of the clear opinion that deduction under Section 80V of the Act is available to the assessee only in respect of interest paid on any money borrowed “for payment of any tax due from him under the Act”. It does not apply to interest paid by the assessee in respect of any loan obtained subsequently for discharging the liability incurred earlier. In the instant case, the amount borrowed by the assessee during the years 1961 to 1970 for paying the taxes under the Act was interest-free. No interest was payable on those borrowings. The assessee claims deduction of interest paid by him on money borrowed in the previous year, relevant to the assessment year 1976-77 for repayment of the old interest-free loans on the ground that those loans had been taken by him for payment of income-tax. Such interest does not fall within the purview of Section 80V of the Act. Obviously, the borrowing, on which interest has been paid, was not for payment of any tax under this Act but for repayment of existing interest-free loans.
6. In view of the above, the question referred to us is answered in the negative, i.e., against the assessee and in favour of the Revenue.
7. The reference is disposed of accordingly with no order as to costs.