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Issues:
1. Deductibility of interest paid to the Electricity Board for belated payment of bills. 2. Interpretation of statutory provisions regarding the payment of interest for late bill payments. Analysis: The case involved a public limited company engaged in the business of chemicals, concerning the assessment year 1975-76. The company claimed deduction of interest paid to the Kerala State Electricity Board for belated payment of bills. The Income-tax Officer initially disallowed the deduction, considering it penal interest. However, the Appellate Assistant Commissioner allowed the deduction, stating that since the interest was paid on overdue bills, it was permissible. The Income-tax Appellate Tribunal upheld this decision, emphasizing that the interest was not penal in nature and there was no violation of law. The Tribunal referred to a Supreme Court decision to support its stance. During the court proceedings, it was unclear under which statutory provision the company was liable to pay interest for late bill payments. The relevant law was not presented by either party. The Tribunal referred to rule 27F of the Regulations under the Electricity (Supply) Act, but this rule was not provided to the court. The company's counsel relied on previous court decisions to argue that the interest payment was not due to a legal violation, making it a deductible expense. Due to the lack of clarity on the statutory provision and the specific rule governing interest payments for late bills, the court declined to answer the questions of law posed by the Tribunal. Instead, the court directed the Income-tax Appellate Tribunal to reconsider the appeal and decide on the deductibility of the interest paid for late bill payments. The reference was disposed of accordingly, with instructions to the Tribunal for further review and decision. In conclusion, the judgment highlighted the importance of clarity regarding the legal basis for interest payments and the necessity for presenting relevant statutory provisions during legal proceedings to determine the deductibility of such expenses accurately.
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