1989 (5) TMI 29 - HC - Income Tax

Summary

Issues involved: Whether interest levied on delayed payment of income-tax is an item of expenditure allowable u/s 37(1) of the Income-tax Act, 1961.

Summary:
The case involved an assessee, a banking company, claiming deduction for interest paid for delayed payment of income-tax for the assessment year 1978-79. The Income-tax Officer rejected the claim, stating that the interest was not wholly and exclusively for the purpose of the business. This decision was upheld by the Commissioner of Income-tax (Appeals) and the Appellate Tribunal. The Tribunal found that the interest payment was not in the character of a trader but only as an assessee, leading to the denial of the deduction. The main contention was whether such interest could be considered an allowable expenditure u/s 37(1) of the Income-tax Act.

The assessee argued that the interest paid was for delayed payment of income-tax, which allowed the bank to use the amount as circulating capital for trading activities, justifying it as a business expenditure. However, the Revenue contended that court decisions uniformly held such interest payments were not deductible. The court considered these arguments and the findings of the Tribunal, noting that the interest for delayed tax payment is part of the tax liability and not a permissible deduction under the Income-tax Act.

The court also examined section 80V of the Income-tax Act, which allowed deduction for interest paid on money borrowed for tax payment. The assessee tried to draw an analogy between borrowing for tax payment and delayed payment resulting in interest. However, the court rejected this argument, emphasizing that the deduction under section 80V was to incentivize timely tax payment, not for delayed payment scenarios. Referring to previous decisions, the court upheld the Tribunal's decision that interest on delayed income-tax payment is not an allowable expenditure u/s 37(1) of the Income-tax Act.

Therefore, the court held that the interest paid on delayed income-tax payment was not an allowable expenditure u/s 37(1) of the Income-tax Act, ruling in favor of the Revenue. The judgment was forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.