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2014 (3) TMI 472 - HC - Income TaxInterest u/s 215 of the Act Deductibility of interest along with income tax liability - Companies (Profits) Surtax Act, 1964 - Whether the Tribunal was legally correct to hold that interest u/s 215 is to be regarded as part and parcel of Income Tax liability Held that - The assessee has revised the chargeable profit deducting interest from the total income as per the letter dated 9.6.1987 - Under Rule 2(i) of the First Schedule, tax and liability payable by the company is to be excluded while computing the chargeable profits, interest charged under any section of the Income Tax Act is covered for exclusion from profits assessed to tax - interest was paid as a consequence of default committed by the assessee in discharging its statutory obligation. The interest under sections 215 or 217 has a direct connection with the amount payable as advance tax by charging interest on which the corpus of the tax amount is enlarged - Section 139 (8) or section 215/217 is to be regarded as part and parcel of the liability to pay tax thus, the same is deductible along with income tax liability while computing the chargeable profits of the company in accordance with the relevant provisions of Companies (Profits) Surtax Act, 1964 thus, there is no reason to interfere in the findings of the Tribunal Decided against Revenue.
Issues:
Interpretation of whether interest under section 215 of the Income Tax Act should be considered part of Income Tax liability and deductible while computing chargeable profits under the Companies Profits (Surtax) Act, 1964. Detailed Analysis: The case involved a Reference Application under Section 256(2) of the Income Tax Act where the Income Tax Appellate Tribunal referred a question regarding the treatment of interest under section 215 in computing chargeable profits. The assessee claimed that interest under sections 139(8) and 215 should be excluded from tax in the computation of chargeable profits under the Companies (Profits) Surtax Act, 1964. The Tribunal allowed the claim, but the Department challenged this decision. The Department argued that interest accrued on delayed tax payment is part of tax under section 43B and is not allowable as a deduction. They cited legal precedents to differentiate between tax, penalty, and interest under the Income Tax Act, emphasizing that interest is not considered tax. The Department contended that interest and income tax are distinct concepts, and the legislative intention is limited to deducting income tax while computing chargeable profits. On the other hand, the assessee relied on legal precedents supporting the inclusion of interest due to delayed tax payment as part of income tax liability. They argued that interest paid for tax delay should not be a permissible deduction under Section 37. The assessee also highlighted cases where interest payable was considered part of the same character as the original amount liable to be paid as income tax. The Court analyzed the provisions of the Companies (Profits) Surtax Act, 1964, and the rules for computing chargeable profits. It noted that interest charged under any section of the Income Tax Act is covered for exclusion from profits assessed to tax under the Act. The Court emphasized that the interest under sections 215 or 217 is part of the liability to pay tax and should be deductible along with income tax liability while computing chargeable profits under the Companies (Profits) Surtax Act, 1964. Ultimately, the Court upheld the Tribunal's decision to allow the claim of the assessee, stating that interest under sections 215 or 217 should be considered part of the liability to pay tax and deductible while computing chargeable profits under the Companies (Profits) Surtax Act, 1964. The Reference Application by the Department was rejected as devoid of merit.
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