1983 (7) TMI 67 - AT - Income Tax

Summary

Issues:
1. Whether interest charged under sections 215 and 216 of the Income-tax Act, 1961, should be deducted while computing chargeable profits under the Companies (Profits) Surtax Act, 1964.

Analysis:
The appeal before the Appellate Tribunal ITAT Ahmedabad-C involved the question of deducting interest charged under sections 215 and 216 of the Income-tax Act, 1961, while computing chargeable profits under the Companies (Profits) Surtax Act, 1964 for the assessment year 1977-78. The assessee contended that the interest payments should be treated as a revenue outgoing or on par with 'tax payable' and deducted in computing the chargeable profits. However, the Income Tax Officer (ITO) rejected these contentions, stating that interest levied under penal provisions of the Income-tax Act could not be deducted as tax in computing the chargeable profits.

The assessee then appealed before the Commissioner (Appeals), arguing that interest and penalties under the Income-tax Act should be included in the term 'income-tax' for computing chargeable profits. The Commissioner (Appeals) dismissed the appeal, citing precedents that interest paid under the Income-tax Act cannot be equated to 'tax.' The assessee further appealed to the ITAT.

During the ITAT hearing, the assessee's representative reiterated the contentions made before the lower authorities. The representative acknowledged that a Supreme Court decision was against their claim regarding the inclusion of interest in the definition of 'tax.' However, they argued that for surtax purposes, chargeable profits should be determined on commercial principles allowing for the deduction of penalty payments. The departmental representative supported the lower authorities' decisions.

The ITAT analyzed the legal provisions and relevant precedents, including a Supreme Court decision and a Karnataka High Court decision, to determine that penal interest paid under the Income-tax Act cannot be considered 'tax.' The ITAT emphasized that the definition of 'tax' under the Income-tax Act does not include interest or penalties. Additionally, the ITAT clarified that in computing chargeable profits, adjustments are made based on the total income of the assessee as per the Income-tax Act, which does not allow for the deduction of penal interest or penalties. Therefore, the ITAT rejected the assessee's contentions and dismissed the appeal.