1981 (6) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Deductibility of interest paid to the Calcutta Corporation in computing the total income of the assessee.
2. Whether the Tribunal had material to conclude that the interest was due to defiance of law and thus not deductible.
3. Whether the Tribunal's decision on the non-deductibility of the interest was perverse.

Summary of Judgment:

Issue 1: Deductibility of Interest Paid to Calcutta Corporation
The assessee claimed a deduction for Rs. 49,413 paid as interest to the Calcutta Corporation for delayed payment of municipal taxes. The ITO disallowed this deduction, stating it was not incurred for earning income. The AAC upheld this view, considering the interest as penal in nature. The Tribunal also sustained the disallowance, viewing the interest as a penalty for defiance of law. However, the High Court examined the provisions of the Calcutta Municipal Act, 1951, particularly s. 236(3), which mandates interest on unpaid bills after 15 days. The Court referenced the Supreme Court's decision in Mahalakshmi Sugar Mills Co. v. CIT, which held that interest on arrears of cess was compensatory, not penal. Applying this reasoning, the Court concluded that the interest paid to the Calcutta Corporation was a statutory obligation and deductible from the total income of the assessee.

Issue 2: Material Before Tribunal on Defiance of Law
The Tribunal concluded that the interest was paid for defiance of law, thus not deductible. The High Court disagreed, stating that the interest was a statutory obligation under s. 236(3) of the Calcutta Municipal Act, 1951, and not a penalty for defiance of law. Therefore, the Tribunal's conclusion lacked proper basis.

Issue 3: Tribunal's Decision on Non-Deductibility
The Tribunal's decision that the interest payable to the Calcutta Corporation was not allowable as a deduction was deemed legally untenable by the High Court. The Court emphasized that the interest was not for defiance of law but a statutory obligation, thus deductible.

Conclusion:
- Question 1: Answered in the affirmative, in favor of the assessee.
- Question 2: Answered in the negative, indicating the interest was not for defiance of law, in favor of the assessee.
- Question 3: The Tribunal's decision was not legally tenable, in favor of the assessee.

Costs:
Parties will pay and bear their own costs.

Agreement:
Sudhindra Mohan Guha J. agreed with the judgment.