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TMI Blog1956 (8) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... ty arose upon the assessee company to pay interest at 6 per cent. it having committed default under sub-section (7) of section 18A and the amount of this liability was assessed at Rs. 4,554. In the assessment year 1952-53 the Taxing Department brought the sum of Rs. 7,519 to tax as the income of the assessee company. The assessee company did not contest the position taken up that this amount represented the income of the assessee company and was liable to tax, but the contention put forward was that this sum should be reduced by the sum of Rs. 4,554 which was the interest which the assessee company was liable to pay and which it had paid. What was argued was that in substance the assessee company had only received Rs. 7,519 less Rs. 4,554, that that was the real income of the assessee, and the assessee was liable to pay tax on this amount of about Rs. 3,000. This contention was rejected by the Tribunal and the assessee company has now come before us on this reference. Now, if we consider these two amounts separately, then the assessee company has to satisfy us that the sum of Rs. 4,554 was a permissible deduction under the Income-tax Act. Mr. Palkhivala realised the difficulty of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r failure to make the advance. There is no connection between these two positions and it is impossible to accept Mr. Palkhivala's contention that the facts with which we are concerned in this case, viz., the advance made by the assessee on which he received interest and the failure by the assessee to carry out the provisions of section 18A(7) are so connected as to constitute one transaction. The result of each of these facts must have separate and independent legal consequences. The receipt of interest undoubtedly constitutes income. The failure to pay interest must be examined in its own merits or demerits and we have to decide whether the failure to make the advance and the necessary consequence of having to pay interest entitles the assessee to any relief or reduction under the provisions of the Income-tax Act. Reliance was placed by Mr. Palkhivala on the statutory assessment form which is prescribed and which contains a column with regard to advance payment of tax, and this form contains the various headings under which interest is payable by the assessee and also the heading of interest payable by the Government under section 18A(5) and then at the end of it we find "net am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he due date. It may be regarded either as representing the profit he might have made if he had had the use of the money, or conversely the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation. From that point of view it would seem immaterial whether the money was due to him under a contract express or implied, or statute, or whether the money was due for any other reason in law." Therefore, Mr. Palkhivala urges that inasmuch as the advance tax was due by the assessee under section 18A and as he failed to make that payment, he became liable to pay interest and that liability must be looked upon as compensation to Government and that compensation must be characterised as technical interest as understood in commercial circles. The difficulty that Mr. Palkhivala finds himself in, is that if we were to apply the same test to the interest received by the assessee and paid by the Government, then this test suggested by Mr. Palkhivala can have no application. If there is a liability upon the assessee to pay the tax and he pays interest because the does not discharge that liability, then it is difficult to understand why ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is suggested in the first instance that the payment falls within the ambit of section 10(2)(xv). It is difficult to understand how, when a businessman commits default in discharging his statutory obligation, the consequences of that default could constitute an expenditure exclusively made for the purpose of his business. Realising this difficulty, Mr. Palkhivala was driven to urge that this liability was incurred by reason of a mistake committed by an employee of the assessee company, and if that is so, he was prepared to satisfy us on authority that the case would fall under section 10(2)(xv). There is nothing to suggest in the statement of the case that the default committed by the assessee was due to any mistake or negligence on the part of its employee and we have not permitted Mr. Palkhivala to elaborate this contention. It was also suggested that apart from section 10(2)(xv), deduction should be permitted on the principles of commercial expediency. But Mr. Palkhivala frankly conceded that if we were against him with regard to his argument about section 10(2)(xv), the position would be the same with regard to this head of his contention. He has drawn our attention to an ob ..... X X X X Extracts X X X X X X X X Extracts X X X X
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