1986 (3) TMI 75 - HC - Income Tax

Summary

Issues:
- Deduction of interest for late payment of provident fund dues
- Allowability of interest as a deduction in computing income
- Interpretation of relevant provisions of the Employees' Provident Funds Act, 1952

Analysis:
The case involved the assessment of an assessee, Bharat Mining Corporation Ltd., for the year 1972-73, regarding the deduction claimed for interest paid on late payment of provident fund dues. The Income-tax Officer disallowed the claim, considering it a penalty. However, the Appellate Assistant Commissioner allowed the deduction, citing previous allowances for late payment of cess. The Revenue appealed to the Income-tax Appellate Tribunal, arguing that interest on provident fund dues was not allowable as the dues were to be paid as an employer, not a businessman. The Tribunal upheld the assessee's contention based on previous decisions and rejected the Revenue's appeal.

The Revenue then approached the High Court, contending that the interest payment was a penalty for default and not deductible. The Revenue cited a case where a similar payment was considered a contractual obligation, not a penalty. The assessee argued that the interest paid was not a penalty but a deductible expense, referencing a Supreme Court case where interest on delayed payment was considered part of the liability. The High Court examined the Employees' Provident Funds Act, 1952, particularly Section 14B, which allows for the recovery of damages for default in payment of contributions. However, the Court noted the absence of a provision for levying interest on delayed provident fund dues.

Ultimately, the High Court found insufficient information to determine whether the interest charged was a penalty or a legitimate expense. As a result, the Court directed the matter back to the Tribunal for clarification on how and under which provision of law the interest was imposed on the assessee. Justice Shyamal Kumar Sen agreed with the decision to send the matter back to the Tribunal for further clarification within six months.