2012 (1) TMI 91 - HC - Income Tax

Deduction u/s 43B in respect of interest paid on additional sales-tax - Tribunal rejected the claim on the ground that interest did not fall within the expression any sum payable used in Section 43B Held that - It is clear in Section 17-A (2) of the Himachal Pradesh General Sales Tax Act, 1968 that once there is a notice of demand for the tax and the same is not paid then interest becomes automatically payable. In this regard, Tribunal, not having considered the said provisions of Himachal Pradesh General Sales Tax Act has committed an error in law Decided in favor of assessee.

Summary

Issues:
- Interpretation of Section 43B of the Income Tax Act, 1961 regarding deduction for interest actually paid on additional sales tax.

Detailed Analysis:
1. The appeal was filed by the assessee under Section 260A of the Income Tax Act against the decision of the Income Tax Appellate Tribunal related to the assessment year 1989-90. The question was whether the assessee was entitled to deduction under Section 43B of the Income Tax Act for interest actually paid on additional sales tax.

2. Section 43B of the Income Tax Act states that a deduction otherwise allowable under the Act in respect of any sum payable by the assessee by way of tax, duty, cess, or fee shall be allowed only when such sum is actually paid by the assessee, irrespective of the previous year in which the liability was incurred.

3. The assessee, a Private Limited Company, had disputed an additional sales tax demand but eventually paid it during the relevant assessment year. The Assessing Officer disallowed the interest payment deduction claimed by the assessee, stating it was not for the period under assessment. The Commissioner of Income Tax (Appeals) further disallowed the interest amount, and the Tribunal upheld this decision based on the interpretation that the interest was not a 'sum payable.'

4. The Tribunal's reasoning was that the expression 'any sum payable' in Section 43B required a legal liability by way of tax, duty, etc., which the assessee failed to establish regarding the interest payment. The Tribunal noted that the assessee had not proven any demand for interest by the Forest Department, and the interest was paid voluntarily.

5. The appellant argued that as per the Himachal Pradesh General Sales Tax Act, if the tax or penalty is not paid within the specified period, interest becomes automatically payable. Referring to a Supreme Court decision, the appellant contended that interest payable on tax should also be considered part of the tax.

6. The Court found that Section 17-A (2) of the Himachal Pradesh General Sales Tax Act mandated the payment of interest if the tax or penalty was not paid within the specified period, which applied to the present case. The Tribunal erred in not considering this provision, and the Court held in favor of the assessee, allowing the deduction for interest paid on the additional sales tax.

7. Consequently, the Court ruled in favor of the assessee, overturning the Tribunal's decision and allowing the deduction for interest paid on the additional sales tax demand.

8. The appeal was disposed of in favor of the assessee, emphasizing the automatic liability for interest when tax or penalty is not paid within the specified period as per the relevant tax legislation.