2019 (12) TMI 346 - AT - Income Tax

Tribunal Upholds Interest Deduction for Belated Tax Payment, Rejects Revenue's Appeal

The Tribunal upheld the Commissioner (Appeals) decision, affirming the allowability of interest on belated Service Tax payment as a deduction. It ... Deduction of expenditure u/s 37(1) - Allowability of interest paid for belated payment of Service Tax - allowable deduction or not - HELD THAT:- Admittedly, the interest is paid for belated payment of Service Tax, which is a compensatory nature. It is settled position of law that interest on delay in payment of tax is also part and parcel of tax and it is equally settled position of law that Service Tax paid is also a permissible deduction. The Hon’ble Supreme Court in the case of Mahalakshmi Sugar Mills Co. Vs.C.I.T [1980 (4) TMI 1 - SUPREME COURT] and C.I.T Vs. Luxmi Devi Sugar Mills P. Ltd., [1990 (9) TMI 8 - SC ORDER] held that interest is only of compensatory nature and does not take a colour of penalty and therefore, allowable deduction. There are no merit in the appeal filed by the Revenue - appeal dismissed - decided against Revenue. Issues:Allowability of interest paid for belated payment of Service Tax.Analysis:The appeal was filed by the Revenue against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2012-13. The Revenue raised grounds challenging the deletion of the disallowance of expenditure on interest on delayed payment of Service Tax, arguing that it is penal in nature. The brief facts of the case involved M/s.VSL India Pvt Ltd., engaged in civil work contracts, declaring a loss of &8377; 4,27,83,179/-. The Deputy Commissioner of Income Tax disallowed the interest paid on delayed Service Tax payment of &8377; 69,20,334/- as penal. The Commissioner (Appeals) held that such interest is compensatory in nature under section 75 of the Service Tax Act and directed the deletion of the addition. The Revenue contended that the interest is penal, citing the decision of the Delhi High Court in a specific case.The Senior D.R. relied on the lower authorities' orders and the Delhi High Court's decision in the case of M/s.Bharat Commerce Industries Ltd. The assessee argued that interest on Service Tax is allowable as it partakes the character of principal tax. The Tribunal examined the issue and referred to various legal precedents. The Tribunal noted that interest on delay in tax payment is part of the tax and that Service Tax paid is a permissible deduction. Citing the Supreme Court's decisions, the Tribunal held that interest on belated Service Tax payment is compensatory and allowable. The Tribunal distinguished the Delhi High Court's decision cited by the Revenue, emphasizing that it pertained to income tax provisions and did not affect the present case. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the allowability of interest on belated Service Tax payment as a deduction.In conclusion, the Tribunal upheld the Commissioner (Appeals) decision, emphasizing the compensatory nature of interest on belated Service Tax payment and its allowability as a deduction. The Tribunal rejected the Revenue's arguments based on the Delhi High Court's decision, stating that it did not apply to the present case. Therefore, the Tribunal dismissed the Revenue's appeal, affirming the decision in favor of the assessee regarding the interest paid for belated payment of Service Tax.