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TMI Blog1998 (4) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings for the assessment year 1981-82, claimed deduction of Rs. 10,542 which amount had been paid by it to the Income-tax Department as interest under section 201(1A) of the Income-tax Act, 1961. The claim so made was rejected by the Income-tax Officer and that rejection affirmed in appeal by the Commissioner of Income-tax. The Income-tax Appellate Tribunal, however, on a further appeal by the assessee, held that the interest so paid was incidental to the business of the assessee and allowed the amount as deduction under section 37 of the Income-tax Act. Learned counsel for the Revenue submitted before us that the deduction so permitted by the Tribunal is contrary to the scheme of the Income-tax Act. Section 201 of the Act deals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des the person who fails to deduct or remit the amount of deduction in the manner required under the Act is liable to pay interest at the rates specified in that sub-section from the date on which tax was deductible to the date on which such tax is actually paid. The liability for deduction of tax arises by reason of the provisions of the Act. Under section 201, the consequence of failure to comply with the same renders that person liable to be deemed as an assessee in default with all the consequences attached thereto. The liability to pay interest on the amount not deducted or deducted but not paid is directly related to the failure to deduct or remit the amount. The amount required to be deducted is the amount payable as income-tax. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1976, is not in any way an expense incurred wholly or exclusively for the purpose of the assessee's business. The court held that : "When interest is paid for committing a default in respect of the statutory liability to pay advance tax, the amount paid and the expenditure incurred in that connection is not in any way connected with pre serving or promoting the business of the assessee. . . The liability in the case of payment of income-tax and interest for delayed payment of income-tax or advance tax arises on the computation of the profits and gains of business". The court further held that : "Under the Income-tax Act, the payment of such interest is inextricably connected with the assessee's tax liability. If income-tax itself is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 429 was an indirect tax payable in the course of the business of the assessee and the interest paid on the arrears of the cess took colour from the cess which was paid. Learned counsel for the Revenue also referred to the decisions of the Bombay High Court in the case of Ferro Alloys Corporation Ltd. v. CIT [1992] 196 ITR 406 and the decision of the Calcutta High Court in the case of Martin and Harris Pvt. Ltd. v. CIT [1994] 73 Taxman 555. It was held in those cases that the interest paid under section 201(1A) of the Act was not deductible as business expenditure under section 37 of the Act. As already noticed the payment of interest takes colour from the nature of the levy with reference to which such interest is paid and the tax re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n business. The Supreme Court in the case of Bharat Commerce and Industries [1998] 230 ITR 733, rejected the argument advanced by the assessee that retention of money payable to the State as tax or income-tax would augment the capital of the assessee and the expenditure incurred, namely, interest paid for the period of such retention would assume character of business expenditure. The court held that an assessee could not possibly claim that it was borrowing from the State, the amounts payable by it as income-tax, and utilising the same as capital in its business, to contend that the interest paid for the period of delay in payment of tax amounted to a business expenditure. The question referred to us, therefore, is required to be and is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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