1995 (7) TMI 26 - HC - Income Tax

Summary

Issues Involved:
1. Whether interest paid to the Customs Department is part and parcel of customs duty and if section 43B of the Income-tax Act, 1961, is applicable.
2. Whether the liability of payment of interest to the Customs Department accrued or arose during the year.
3. Whether bad debts written off by the petitioner are allowable.

Summary:

Issue 1: Applicability of Section 43B to Interest on Customs Duty
Justice K. C. Agrawal asserted that the interest payable u/s 61 of the Customs Act, 1962, is a statutory liability and falls within the ambit of section 43B of the Income-tax Act, 1961. He emphasized that section 43B, containing a non-obstante clause, overrides other provisions of the Act, mandating that deductions for any tax or duty are allowable only in the year of actual payment. He concluded that interest on customs duty is a statutory liability and thus subject to section 43B.

Justice Ruma Pal disagreed, stating that the Customs Act differentiates between duty and interest. She highlighted that the interest under section 61(2) is not part of the customs duty but a charge for warehousing goods beyond the prescribed period. She argued that the word "duty" in section 43B should not be extended to include interest payable under the Customs Act. Therefore, she concluded that interest on customs duty is not covered by section 43B.

Justice Prabir Kumar Majumdar concurred with Justice Ruma Pal, emphasizing that the interest is for warehousing goods beyond the statutory period and not for delayed payment of duty. He concluded that interest is not part and parcel of the customs duty and thus section 43B does not apply.

Issue 2: Accrual of Liability for Interest
Justice Ruma Pal held that the liability to pay interest accrued automatically as per the Customs Act and was not contingent. She emphasized that the provision for interest made by the assessee was not conditional and should be allowed as a deduction under the mercantile system of accounting.

Justice Prabir Kumar Majumdar agreed with Justice Ruma Pal, stating that the liability for interest accrued during the previous year and was not conditional. He concluded that the deduction for interest should be allowed.

Issue 3: Allowability of Bad Debts
This issue was not pressed by the counsel for the assessee and thus, no decision was made.

Conclusion:
The majority opinion, held by Justice Ruma Pal and Justice Prabir Kumar Majumdar, concluded that interest on customs duty is not covered by section 43B of the Income-tax Act, 1961, and that the liability for interest accrued during the previous year should be allowed as a deduction. Justice K. C. Agrawal dissented on the first two issues. The third issue was not addressed.