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TMI Blog1989 (10) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... e mean that the said decision of the Special Bench is not correct. The submissions were-- (1) The Tribunal in para 2 of its order has stated that "this question is no longer res integra in view of two direct decisions of the High Courts on the point, they are CIT v. Oriental Carpet Mfrs. (India) (P.) Ltd. [1973] 90 ITR 373 (Punj. Har.) and National Engg. Industries Ltd. v. CIT [1978] 113 ITR 252 (Cal.)". It was submitted that this statement is not correct in view of the Supreme Court decision in the case of CIT v. Birla Cotton Spg. Wvg. Mills Ltd. [1971] 82 ITR 166. According to him, just as in the case of Birla Cotton, the expenditure for the preservation of the assessee's business was allowed to be deducted, so in this case the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us since interest paid on money borrowed for the purpose of payment of income-tax was an allowable deduction there was no reason why interest paid on money retained by not paying tax should be disallowed. 2. The learned Departmental Representative on the other hand, submitted that according to the Supreme Court in the case of Gujarat Travancore Agency v. CIT [1989] 177 ITR 455 penalty was compensation and since according to the Gujarat High Court in the case of Bharat Textile Works interest under section 220 was compensation and since penalty was not an allowable deduction so this interest payment was not an allowable deduction. He submitted that the following decisions were in favour of the revenue :-- (1) Aruna Mills Ltd. v. CIT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dunlop India Ltd. [1985] 154 ITR 172 (SC) at page 182). Governments are not run on interest on unpaid taxes. The reliance on the Supreme Court decision in the case of Birla Cotton Spg. Wvg. Mills Ltd. is unjustified. That case was not concerned with the payment of income-tax. Preserving the business apparatus is certainly part of business activity and the expenditure in relation to that may be allowed as a deduction but it is no part of business activity not to pay the tax earned as a result of business activity. The learned Departmental Representative has rightly pointed out that since the tax liability would not be known prior to the determination of profits, interest on the tax cannot be allowed as deduction. The argument based on rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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