9911796707
TMI Blog1984 (9) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee claimed deduction of this interest amount of Rs. 1,15,809 under s. 37 of the I.T. Act, 1961, in computing the business profits. The AAC of Income-tax held that the interest was not paid in respect of the capital borrowed for the purposes of the assessee s business. The assessee went up in further appeal to the Tribunal. The Tribunal, following the judgment of this court in CIT v. Mahalakshmi Sugar Mills Ltd. [1972] 85 ITR 320, rejected the appeal filed by the assessee. The assessee, therefore, by an application under s. 256(1) required the Tribunal to state a case and refer the above question for opinion to the High Court. Mr. Vaish, learned counsel for the assessee, contended before us that interest is compensation paid for the user of money and since the money was used by the assessee for the purposes of its business, the interest paid under s. 139 and s. 215 should be allowed as deduction under s. 37 of the Income-tax Act. Counsel submitted that the unpaid amount of tax was Rs. 34,37,819 and the said amount was used by the assessee for the purposes of its business. It was submitted that if the tax amount was to be paid in time, the assessee would have had to bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat an assessee has wilfully violated any of the provisions of the taxing statute. Interest is ordinarily claimed from an assessee who has withheld payment of any tax payable by him and it is always calculated at the prescribed rate on the basis of the actual amount of tax withheld and the extent of delay in paying it. It may not be wrong to say that such interest is compensatory in character and not penal." We have carefully gone through the decision of the Supreme Court in Associated Cement Co. Ltd. v. Commercial Tax Officer [1981] 48 STC 466, and are humbly of the opinion that the observations of the Supreme Court made in a different context would not help the assessee. The Supreme Court was concerned in that case with the sustainability of penalty and interest leviable under the Rajasthan Sales Tax Act, 1954, and the Central Sales Tax Act, 1956, for not including the freight charges in the taxable turnover in the original returns and for not paying the tax in respect of such freight charges. On the question of penalty, the Supreme Court held, on the facts of the case, that the levy of penalty was unsustainable. However, on the second question of interest, the majority view wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esult in more funds being left for the purpose of carrying on the business, there is always a possibility of higher profits." In this case, the Supreme Court was concerned with the question whether the expenditure on the proceedings in respect of the Investigation Commission by the assessee was deductible under s. 10(2)(xv) of the I.T. Act. The Supreme Court had made the above observation while distinguishing another judgment of the Supreme Court in Travancore Titanium Products Ltd. v. CIT [1966] 60 ITR 277, where it was held that the charge of tax was the same whether the assets were part of or used in the trading organisation of the owner. In the case of Dalmia Dadri Cement Ltd. v. CIT [1980] 125 ITR 425, our High Court, while deciding the question whether commission paid on, borrowing shares for the purposes of treating them as security to Income-tax Department for securing stay of recovery of taxes, followed the judgment of the Punjab and Haryana High Court in Dalmia Dadri Cement Ltd. v. CIT [1973] 90 ITR 297, in order to have uniformity of construction in an all-India statute like the I.T. Act. The learned judges, however, observed that there was no divergence of view with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest bore the character of penalty. It may be relevant to note at this stage that while referring to the judgment of the Punjab and Haryana High Court in Oriental Carpet Manufacturers' case [1973] 90 ITR 373, the Supreme Court kept open the question regarding the deductibility of interest paid by an assessee on account of delay in payment of the provisional demand of tax under s. 36(1)(iii) and s. 37 of the I.T. Act. The Supreme Court held that interest payable on arrear of cess under s. 3(3) is in reality part and parcel of the liability to pay cess. The Supreme Court observed as follows (at p.. 433 of 123 ITR) : " Now the interest payable on an arrear of cess under s. 3(3) is in reality part and parcel of the liability to pay cess. It is an accretion to the cess. The arrear of cess carries' interest; if the cess is not paid within the prescribed period, a larger sum will become payable as cess. The enlargement of the cess liability is automatic under s. 3(3). No specific order is necessary in order that the obligation to pay interest should accrue. The liability to pay interest is as certain as the liability to pay cess. As soon as the prescribed date is crossed without paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming to the conclusion that interest paid due to delay in payment of tax would also be a part and parcel of the liability to pay income-tax. Since income-tax paid by an assessee is not a permissible deduction, the interest paid for delay in payment of income-tax would, therefore, also not be a permissible deduction under s. 37 of the I.T. Act. This interest would take the colour of the original amount liable to be paid as income-tax. The liability to pay interest arose from failure to pay tax under ss. 139 and 215 of the I.T. Act. Interest was paid as a consequence of default committed by the assessee in discharging its statutory obligations. Although it is true that the interest charged due to failure to comply with a statutory obligation is not penalty, yet it cannot be said that the payment of such interest is compensation to the Government in the ordinary commercial sense. The reference to the insertion of s. 80V will not make any difference for the present case, since the question referred pertains to the assessment year 1972-73 and s. 80V was inserted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976. We, therefore, answer the question in the affi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
