1989 (10) TMI 77 - AT - Income Tax

Summary

Issues:
1. Disallowance of interest paid under section 220(2) for non-payment of income tax.
2. Disallowance of a specific amount of Rs.300.

Detailed Analysis:

1. The main issue in this case was the disallowance of Rs.85,808 as interest paid by the assessee under section 220(2) for non-payment of income tax. The appellant argued that the interest should be allowed as a deduction, citing various legal precedents and interpretations. The appellant contended that the interest was compensation for the retention of money and not a penalty, thus making it an allowable deduction. Reference was made to decisions such as Bharat Textile Works v. ITO and Chandrakant Damodardas v. ITO to support this argument. Additionally, the appellant argued that only the real income of the assessee should be taxed, and since the interest was paid, it should be allowed as a deduction. However, the Departmental Representative countered this argument by stating that interest was part of tax and not deductible under section 40(ii). The representative relied on decisions like Aruna Mills Ltd. v. CIT and CIT v. Oriental Carpet Mfrs. (India) to support the revenue's position. The Tribunal ultimately rejected the appellant's arguments, emphasizing that the purpose of the Income-tax Act is to levy and collect tax on income, not to substitute interest on unpaid tax for the tax itself.

2. The second issue pertained to a disallowance of Rs.300, which the appellant did not press, leading to its rejection by the Tribunal. This issue was straightforward and did not involve extensive legal arguments or interpretations.

In conclusion, the Tribunal dismissed the appeal, upholding the disallowance of interest paid under section 220(2) for non-payment of income tax and rejecting the disallowance of Rs.300. The judgment underscored the fundamental principle that the Income-tax Act aims to collect tax on income, and interest on unpaid tax cannot be considered a business expense or deductible amount.