Interest on delayed income tax payment is not deductible as business expenditure under section 37(1).

Interest paid for delayed payment of income tax under section 220(2) is not deductible under section 37(1) merely because the underlying tax is computed on business profits and gains. The liability arises from default in payment of tax and is an incidental consequence of non-payment, not expenditure laid out wholly and exclusively for business purposes. The court followed the consistent view of several High Courts and held that such interest is not allowable as business expenditure.

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Issues: Whether interest paid for delayed payment of tax under section 220(2) of the Income-tax Act, 1961 is allowable as a deduction under section 37(1) of the Income-tax Act, 1961 merely because the tax liability is computed on profits and gains.

Analysis: The tax was assessed on business profits, but the interest charged for delayed payment was an incidental liability arising from default in payment of tax and not an expenditure laid out wholly and exclusively for the purposes of business. The Court followed the consistent view taken by several High Courts that such interest is not deductible as business expenditure under section 37(1).

Conclusion: The interest paid under section 220(2) of the Income-tax Act, 1961 is not allowable as a deduction under section 37(1) of the Income-tax Act, 1961. The question was answered in the negative and against the assessee.

Ratio Decidendi: Interest paid for delayed payment of income tax is not a deductible business expenditure under section 37(1) merely because the underlying tax is computed on business profits and gains.

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