2001 (3) TMI 60 - HC - Income Tax

Summary

Issues:
1. Allowability of deduction for interest payable/paid by the assessee.
2. Interpretation of liability for paying interest on delayed payment.
3. Discretion of suppliers to charge interest.

Analysis:
1. The primary issue in this case is the allowability of a deduction for interest payable/paid by the assessee. The dispute pertains to the assessment year 1975-76 and revolves around whether an amount of Rs. 48,161 in respect of interest payable/paid was an allowable deduction.

2. The background facts reveal that the assessee-company took over a business as a running concern from a partnership firm. The agreement between the parties included a clause stipulating liability for paying interest on delayed payment. The dispute arose from four debit notes received by the assessee from the suppliers during the assessment year, requiring payment of a sum of Rs. 62,540. The Income-tax Officer allowed a deduction of Rs. 12,520, while the Appellate Assistant Commissioner held that the liability for interest arose from default in payment, not merely on receipt of debit notes.

3. The Tribunal considered the system of crediting interest followed by the assessee and the discretion of suppliers to charge interest at 12 per cent in case of delay. The Accountant Member and the Vice-President concluded that the endorsement by the purchaser on the order form confirmed the suppliers' discretion to charge or not to charge interest. Therefore, there was no accepted liability for the assessee to pay such interest, and it was not required to provide for such contingencies in its accounts.

4. In light of the above, the Tribunal's decision was upheld, ruling in favor of the assessee and against the Revenue. The judgment emphasized that the suppliers had the discretion to charge interest, and the assessee was not obligated to provide for such contingencies. The decision was deemed reasonable, and no question of law arose from the factual position. Thus, the deduction for interest payable/paid was allowed, and the reference was disposed of accordingly.