1989 (5) TMI 4

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..... was not allowable in computing the total income of the assessee ?" The dispute relates to the claim for Rs. 43,007 paid by the assessee as interest to the Income-tax Department under section 139 as a deduction in computing its total income. The Income-tax Officer referred to the case of River Valley Tea Co. (P.) Ltd. v. Agrl. ITO [1974] Tax LR 805 (Gauhati) and disallowed the claim. On appeal, the Commissioner of Income-tax (Appeals) further referred to Balmer Lawrie and Co. Ltd. v. CIT [1960] 39 ITR 751 (Cal) and National Engineering Industries Ltd. v. CIT [1978] 113 ITR 252 (Cal) in which the Calcutta High Court had taken a similar view and confirmed the order of the Income-tax Officer. The assessee came in second appeal to the Tribunal .....

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..... ) of section 139 or section 215, it is nevertheless a part of the process of assessing the tax liability of the assessee. Where the Income-tax Officer considers that there is a case for levying interest under sub-section (8) of section 139 or under section 215, what he does in practice, is to make an order levying such interest after completing the assessment of the assessee's total income and the tax payable by him." It is contended by Mr. Bagaria, learned advocate, that having regard to the aforesaid observation of the Supreme Court, the interest being compensatory in nature, it should be allowed as a revenue deduction. We are, however, unable to accept this contention. The expenditure has been claimed as deductible under section 37 of .....

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..... The Supreme Court in Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429, held that such interest is not a penalty and is accordingly allowable. The reason is that liability to pay cess is an allowable deduction. because it is incurred for the purpose of business of a sugar manufacturing company and any expenditure connected with such liability is also allowable. It cannot, however, be said that interest paid for delay in filing the return has any connection with the business of the assessee. The assessee does not pay the interest for the purpose of business. It has nothing to do with the carrying on of or carrying out of the business activity. The liability to tax no doubt arises out of the business activity. But the income-tax itself is .....

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