1989 (1) TMI 24 - HC - Income Tax

Interest payments to tax department not deductible as business expenditure under Income-tax Act

Assam Forest Products Pvt. Limited Versus Commissioner Of Income-Tax

Assam Forest Products Pvt. Limited Versus Commissioner Of Income-Tax - [1989] 180 ITR 478, 79 CTR 83, 47 TAXMANN 75 Issues involved: The issue involves the deductibility of interest paid by the assessee under sections 139, 215, and 217 of the Income-tax Act, 1961 as a deduction in computing the income chargeable under the head 'Profits and gains of business or profession'.Judgment Details:The High Court considered the case where the assessee, a company, claimed deduction for interest paid to the Department under various counts, including late filing of return, shortfall in advance tax payment, and failure to make estimate, under sections 139, 215, and 217 of the Income-tax Act, 1961. The Income-tax Officer disallowed the deductions, and the Appellate Assistant Commissioner upheld the decision, stating that interest payment to the Department could not be considered as business expenditure. The Appellate Tribunal concluded that the interest payments were not trading losses, not incurred for reducing tax liability, preserving the business, or incidental to business, and were penal in nature.The assessee contended that interest levied under the Act was compensation, not a penalty, citing a Supreme Court decision. The High Court referred to various decisions, including CIT v. Oriental Carpet Manufacturers, holding that interest for delayed tax payment is not deductible as business expenditure. The Court also referred to the Supreme Court's decision in Mahalakshmi Sugar Mills Co. v. CIT, stating that interest paid on arrears of cess was not a penalty but part of the liability to pay tax.The Court further discussed the deductibility of interest under sections 139, 215, and 217, emphasizing that such interest is an accretion to the tax amount payable. Referring to precedents, the Court held that interest on income tax is not deductible under the Act, and interest under the mentioned sections cannot be allowed as a deduction.In conclusion, the Court answered the question referred in the negative, against the assessee. The judgment delay was attributed to the recent receipt of case records. Judge J. Sangma concurred with the decision.The separate judgment delivered by Judge J. Sangma was in agreement with the main judgment, supporting the decision against the assessee.