1983 (9) TMI 125 - AT - Income Tax

Assessment Order, Debt Owed, Income Tax Act, Interest Payable By Assessee, Orders Passed, Valuation Date

Summary

Issues:
Disallowance of interest charged under various sections of the Income-tax Act, 1961 claimed as a debt.

Analysis:
The Appellate Tribunal ITAT Cochin addressed the issue of disallowance of interest charged under different sections of the Income-tax Act, 1961, which the assessee claimed as a debt. The Wealth-tax Officer (WTO) allowed only income-tax liability as a debt for the assessment year 1975-76, but not for 1976-77 due to no income-tax liability according to the income-tax return. The AAC found that the tax liabilities were not outstanding by demand notices on relevant valuation dates, thus qualifying as allowable debts for both assessment years. However, the dispute centered on whether interest payable with tax demands could be considered debts. The AAC disallowed interest as a debt, stating that interest does not become a charge on assets on valuation dates.

The assessee argued that interest liability arose simultaneously with tax assessments, both being demanded through the same notice, justifying their treatment as debts. The departmental representative contended that interest becomes a liability only upon quantification post-assessments, emphasizing that the Income Tax Officer (ITO) had powers to reduce or waive interest, crystallizing the liability only upon ITO's demand.

The Tribunal noted that interest demanded under specific Income-tax Act sections was payable automatically upon defaults, without requiring a separate order. Citing the Supreme Court ruling in Kesoram Industries & Cotton Mills Ltd. v. CWT, it clarified that a debt includes present obligations, such as income-tax liability, even if payable after quantification, becoming a perfected debt by the accounting year's end. The Tribunal rejected the argument that interest lacked a charge like income tax, asserting that the provisions of the Income-tax Act automatically levy interest upon specified events.

The Tribunal disregarded the department's emphasis on authorities' power to reduce or waive interest, as such actions occur post-liability and do not negate the initial chargeability. It concluded that interest payable alongside taxes by statutory provisions constitutes a debt owed by the assessee. However, not all outstanding amounts could be treated as debts, requiring interest to have accrued before valuation dates. The Tribunal directed the WTO to determine the interest amount qualifying as a debt based on specific principles, ultimately allowing the appeals partially in favor of the assessee.