Deb, J.:— This is a reference under section 256(1) of the Income-tax Act, 1961. The assessment year is 1972–73. The previous year ends on December 31, 1971. The question before us runs thus:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the payment of interest of Rs. 28,488 on money borrowed for payment of income-tax was not an expenditure laid out wholly and exclusively for the purpose of business as contemplated by sub-section (1) of section 37 of the Income-tax Act, 1961?”

2. The assessee is a company. The company had an overdraft account with a bank and utilised this account for payment of income-tax and claimed the proportionate interest paid on the said amount as an allowable expenditure under section 37(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). The Income-tax Officer disallowed the claim. The appeals filed by the assessee were dismissed by both the appellate authorities by following the case of Mannalal Ratanlal v. Commissioner Of Income-Tax, Calcutta., [1965] 58 ITR 84 (Cal).

S.P Mitra, J.:— (as he then was), speaking for this court in the aforesaid case, held that the interest paid on a borrowed amount for payment of income-tax is not a deductible expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.

3. Mr. Kalyan Ray, learned counsel for the assessee, argues before us that the aforesaid case was wrongly decided by this court in view of the following decisions of the Supreme Court:

(1) Commissioner of Income-tax v. Chandulal Keshavlal & Co., [1960] 38 ITR 601 (SC), (2) Commissioner of Income-tax v. Malayalam Plantations Ltd., [1964] 53 ITR 140 (SC), (3) Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, [1966] 59 ITR 767 (SC), (4) Travancore Titanium Products Ltd. v. Commissioner Of Income Tax Kerala , [1966] 60 ITR 277 (SC), (5) Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax, [1967] 63 ITR 207 (SC), (6) Commissioner of Income-tax v. Birla Cotton Spinning & Weaving Mills Ltd., [1971] 82 ITR 166 (SC) and (7) Indian Aluminium Co. Ltd. v. Commissioner of Income-tax, [1972] 84 ITR 735 (SC).

4. In the case of Kesoram Industries and Cotton Mills Ltd., [1966] 59 ITR 767 (SC), the assessee was a company and, therefore, Mr. Ray argues that, in this case, the Supreme Court has held that “the income-tax liability of a company is a trading debt”. But we reject it as the Supreme Court has not said so and we must not misread it, as rightly said by Mr. Ajit Sengupta, learned counsel for the revenue.

5. Now, in Malayalam Plantations Ltd., [1964] 53 ITR 140 (SC), at page 150 of the report, the Supreme Court says thus:

“The expression ‘for the purpose of the business’ is wider in scope than the expression ‘for the purpose of earning profits’. Its range is wide; it may take in not only the day to day running of a business but also the rationalisation of its administration and modernisation of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business.”

6. Mr. Ray picks up the words “it may also comprehend payment of statutory dues and taxes” and argues that the expression “for the purpose of the business” is wide enough to include payment of income-tax but we reject it, for the payment of income-tax is not a pre-condition either for commencing or for carrying on of a business.

7. Mr. Ray then cites the cases of Chandulal Keshavlal & Co., [1960] 38 ITR 601 (SC), Travancore Titanium Products Ltd., [1966] 60 ITR 277 (SC) and Indian Aluminium Co. Ltd., [1972] 84 ITR 735 (SC) and argues that on the ground of commercial expediency, trading principles and commercial practice, it should be held that the interest paid by the assessee on the borrowed money for the payment of income-tax is an expenditure incidental to the business of the assessee and as such it is a deductible expenditure under section 37(1) of the Act. He also places strong reliance in the case of Birla Cotton Spinning and Weaving Mills Ltd., [1971] 82 ITR 166 (SC), at page 172 of the report, where the Supreme Court says thus:

“It must be remembered that the earning of profits and the payment of taxes are not isolated and independent activities of a business. These activities are continuous and take place from year to year during the whole period for which the business continues.”

8. And argues that the payment of income-tax is a business activity of a trader and that even if an expenditure is not directly related to the earning of income it may still be regarded as an admissible deduction as observed by the Supreme Court in the case of Sree Meenakshi Mills Ltd., [1967] 63 ITR 207 (SC), at page 213 of the report.

9. Now, in the case of Birla Cotton Spinning and Weaving Mills Ltd., [1971] 82 ITR 166 (SC), assessments for certain assessment years were already final and investigation proceedings were started against the assessee regarding those assessment years. If the result of the said investigations went against the assessee its business would have been totally annihilated inasmuch as the assessee would have been liable to pay a huge tax for those assessment years. In those circumstances, the assessee had to incur law charges and expenses to fight out the said investigation and claimed those amounts as deductible expenditure. The Supreme Court held that those amounts were deductible expenditure because the assessee had to incur those expenditure for the purpose of protection and preservation of its business.

10. Mr. Ray also fails to notice that the Supreme Court has used the expression “the earning of profits” and not the expression “for the purpose of business” in its aforesaid dictum, which was made in a different context, and has no bearing on the question in this reference before us. Similarly, the aforesaid decisions of the Supreme Court cited by him were decided on different facts and they do not apply to the case in hand.

11. It is settled law that the expression “for the purpose of a business” is wider in scope than the expression “for the purpose of earning profit”. It is also settled law that an expenditure cannot be allowed as business expenditure under section 37(1) of the Act unless it was incurred or laid out directly or indirectly by an assessee wholly and exclusively for the purpose of his business.

12. A trader carries on business for the purposes of earning profits and not for the purposes of paying income-tax. No business is ever carried on, nor can it be carried on with the object of paying the income-tax. Though “the earning of profits and the payment of taxes are not isolated and independent activities of a business”, it cannot be said that the expenditure incurred or laid out for the purpose of the payment of income-tax should fall within the scope of the expression “for the purpose of the business”.

13. In Aruna Mills Ltd. v. Commissioner of Income-tax, [1957] 31 ITR 153, 162, the Bombay High Court has rejected the claim for deduction of interest paid under section 18A(7) of the Indian Income-tax Act, 1922, with an observation that “it is difficult to understand how, when a businessman commits default in discharging his statutory obligation, the consequences of that default could constitute an expenditure exclusively made for the purpose of his business”.

14. Mr. Ray disputes the correctness of the aforesaid observation and argues that the payment of income-tax should be held to be a business expenditure on commercial principles or on the ground of commercial expediency. In support of this contention he places reliance on clause 3 of item (vi) of Schedule VI of the Companies Act, 1956, and argues that the amount of income-tax payable by a company must be debited to the profit and loss account and, therefore, in determining the trading profits of a company the amount of income-tax is a proper charge. But there is no merit in his contention in view of sub-item (h) of item (x) of the aforesaid Schedule which specifically provides that the taxes on income cannot be included in the profit and loss account.

15. In Maharajadhiraj Sir Kameshwar Singh v. Commissioner of Income-tax, [1961] 42 ITR 774 (Pat), Ramaswami C.J, at page 778, speaking for the Patna High Court, says that “a deduction of interest on money borrowed for payment of tax is not a legitimate deduction”. At page 779 of the report, his Lordship further says: “nor can the interest payable by the assessee be claimed as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922”.

16. This court in the case of Mannalal Ratanlal, [1965] 58 ITR 84 (Cal) has followed the aforesaid decision of the Patna High Court. The case of Mannalal Ratanlal, [1965] 58 ITR 84 (Cal) has been followed by the Gujarat High Court in the case of Commissioner of Income-tax v. Mrs. Indumati Ratanlal, [1968] 70 ITR 353, by the Punjab High Court in the case of Dalmia Dadri Cement Ltd. v. Commissioner Of Income-Tax., [1972] 86 ITR 577, by the Allahabad High Court in the case of Madhav Pd. Jatia v. Commissioner Of Income-Tax, U.P, [1973] 87 ITR 298, and again by the Punjab High Court in the case of Commissioner of Income-tax v. Oriental Carpet Manufacturers (India) P. Ltd., [1973] 90 ITR 373.

17. In the case of Birla Cotton Spinning and Weaving Mills Ltd., [1971] 82 ITR 166, the Supreme Court has approved the decision of this court in the case of Commissioner of Income-tax v. Calcutta Landing and Shipping Co. Ltd., [1970] 77 ITR 575 (Cal), in which this court did not differ from Mannalal Ratanlal's case, [1965] 58 ITR 84 (Cal) and only distinguished it on facts.

18. In the case of Waldies Ltd. v. Commissioner of Income-tax, [1977] 110 ITR 577 (Cal), this court followed the case of Mannalal Ratanlal, [1965] 58 ITR 84 (Cal) by rejecting the same arguments made before us by Mr. Ray.

19. In Dalmia Dadri Cement Ltd. v. Commissioner Of Income-Tax., [1973] 90 ITR 297 (Punj), it was argued that the case of Dalmia Dadri Cement Ltd. v. Commissioner Of Income-Tax., [1972] 86 ITR 577 (Punj) was wrongly decided in view of the judgment of the Supreme Court in the case of Birla Cotton Spinning and Weaving Mills Ltd., [1971] 82 ITR 166, and Mr. Ray repeats the same arguments but the Punjab and Haryana High Court rejected those arguments. And we respectfully agree with the reasons given by their Lordships in rejecting those arguments.

20. Further, section 40(a)(ii) of the Act provides that notwithstanding anything to the contrary in sections 30 to 39, in computing the income chargeable under the head “Profits and gains of business or profession” any sum paid on account of 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 or gains shall not be deducted. Therefore, no commercial principle whatsoever can make it a deductible expenditure under section 37(1) of the Act in view of the aforesaid mandate of the law.

21. Further, the provisions of section 80V, introduced with effect from April J, 1976, by section 26 of the Taxation Laws (Amendment) Act, 1975, cannot be ignored in deciding the instant question before us. It provides that any interest paid by an assessee in the previous year on any money borrowed for the payment of tax due from him under the Act shall be deducted in computing his total income.

22. Section 80V applies to all assessees alike. It is also not confined to any particular source of income, nor it is based on any commercial principle or commercial expediency.

23. Hence, to accept the argument of Mr. Ray that the interest paid on money borrowed for the payment of income-tax is a deductible expenditure under section 37(1) of the Act is to hold that with effect from April 1, 1976, an assessee whose income is taxable under section 28 of the Act is entitled to a double deduction for the same amount, namely, in the computation of his business or professional income and again in the computation of his total income and, accordingly, his contention must fail, for we are unable to impute such lack of wisdom to the legislature. However wide may be the term “commercial expediency”, an expenditure cannot be allowed as a business expenditure under section 37(1) of the Act unless it is directly or indirectly incurred or laid out wholly and exclusively for the purpose of the business, that is to say, for the purpose of carrying on or carrying out of the business. And it is futile to argue that each and every expenditure incurred by a trader is a deductible expenditure.

24. Now, in Ashton Gas Co. v. Attorney-General, [1906] AC 10 (HL), at page 12 of the report, the Lord Chancellor says thus:

“The income tax is a charge upon the profits; the thing which is taxed is the profit that is made, and you must ascertain what is the profit that is made before you deduct the tax—you have no right to deduct the income tax before you ascertain what the profit is. I cannot understand how you can make the income tax part of the expenditure.”

25. Since the amount paid as income-tax is not an expenditure at all, not even a business expenditure, it cannot even be argued that the interest paid by a trader on the money borrowed for the payment of income-tax is a business expenditure on any commercial principle, not even on the ground of commercial expediency. Further, the payment of income-tax on the interest paid on the borrowed money for the payment of income-tax is not at all related to the purpose and the object of the business. And no element of trade in its commercial sense being involved in it, the commercial principles and the commercial expediency must be left out of consideration in determining this issue.

26. Mr. Ray in desperation has picked up a line or two from one or the other judgment of the Supreme Court de hors their context, as Mannalal Ratanlal's case, [1965] 58 ITR 84 (Cal) stares at his face, but in the “Privy Purse case”, (Madhav Rao Scindia v. Union of India, (1971) 1 SCC 85 : AIR 1971 SC 530 at page 578) Shah J. (as his Lordship then was) says thus:

“It is difficult to regard a word, a clause or a sentence occurring in a judgment of this court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment.”

27. As already said, the instant question before us “did not even fall to be answered in” those judgments of the Supreme Court cited by Mr. Ray and those observations have no bearing on it. Further, a “decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein, nor what logically follows from the various observations made in it”, as said by Hegde J., while speaking for the Supreme Court in the case of State of Orissa v. Sudhansu Sekhar Misra, AIR 1968 SC 647, at page 651.

28. For all the aforesaid reasons we reject the arguments of Mr. Ray and answer the question in the affirmative and in favour of the revenue without making any order as to costs.

Sudhindra Mohan Guha, J.:— I agree.