2000 (9) TMI 999 - AT - Income Tax

Summary

Issues:
1. Interpretation of section 43B of the Income-tax Act, 1961 regarding the disallowance of certain expenses.
2. Whether interest payable on sales tax should be considered as part of the tax itself under section 43B(a).
3. Applicability of the provisions of section 43B(a) to interest on tax under the Bengal Finance (Sales Tax) Act, 1941.

Analysis:
1. The Assessing Officer disallowed an amount debited to the accounts of the assessee for interest payable on turnover-tax, citing section 43B of the Income-tax Act, 1961, for non-payment during the relevant year. Relying on judicial precedents, including the Supreme Court's decision in Mahalakshmi Sugar Mills Co. v. CIT, the Assessing Officer held that interest payable on sales tax was an accretion to tax and hence disallowed the claim. The Commissioner of Income-tax (Appeals) disagreed, emphasizing the need to consider the nature of the levy under the Bengal Finance (Sales Tax) Act, 1941, and concluded that interest on tax is not covered by section 43B(a, ultimately deleting the disallowance.

2. The Departmental Representative argued that the expression "by way of tax" in section 43B(a) should be interpreted broadly to include interest on tax. Citing the Supreme Court's judgment in Mahalakshmi Sugar Mills Co., the Representative contended that interest should be considered part of the tax. On the other hand, the assessee's counsel relied on various judicial decisions, such as Hindustan Motors Ltd. v. CIT and CIT v. Padmavati Raje Cotton Mills Ltd., to support the view that interest payable under the Bengal Finance (Sales Tax) Act should not be treated as tax under section 43B. The Tribunal agreed with the Commissioner of Income-tax (Appeals) and the assessee's arguments, emphasizing a strict interpretation of section 43B and the need to consider the specific nature of the financial liabilities imposed by the statute.

3. The Tribunal considered previous decisions related to the applicability of section 43B to interest under different statutes, such as the Customs Act and the Haryana Sales Tax Act. Relying on these precedents and the strict interpretation of tax-related provisions, the Tribunal upheld the Commissioner's decision that interest on purchase tax under the Bengal Finance (Sales Tax) Act should not be considered part of the tax for the purpose of section 43B(a). Consequently, the departmental appeal was dismissed, affirming the relief granted to the assessee by the Commissioner of Income-tax (Appeals).