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Issues: The deductibility of interest paid for delayed income tax payment in computing profits and gains u/s 28 and 37 of the Income-tax Act, 1961.
Summary: The case involved a private limited company engaged in real estate and money-lending businesses, with common funds. The company paid interest to the Income-tax Department, including an amount for delayed tax payment. The Income-tax Officer rejected the deduction claim, stating that penal interest was not admissible. The Appellate Assistant Commissioner upheld the decision, citing precedents. However, the Tribunal allowed the deduction, considering the commercial practice and accountancy principles, emphasizing the nexus between the expenditure and income earned. The Department argued that interest on personal liabilities, like income tax, was not deductible. The counsel for the company relied on precedents highlighting the necessity of the expenditure for earning profits and the direct connection between the expenditure and income. The court analyzed previous decisions related to interest deductions for specific purposes, emphasizing the distinction between personal liabilities and business expenses. The court concluded that the interest paid for delayed income tax payment did not qualify as a deductible expense u/s 28 or 37. It highlighted the personal nature of income tax liabilities and the lack of a direct nexus between the interest payment and income generation. The court rejected the company's claim, emphasizing the specific conditions for deductions under section 37 and the historical context of relevant legal provisions. The court's decision was based on the interpretation of the law and previous judgments, ultimately ruling against the company's claim for deduction. In conclusion, the court answered the referred question in the negative, denying the deduction claim for interest paid on delayed income tax payment.
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