Separate liability for interest on municipal tax arrears allowed as business deduction; section 43B held inapplicable.

Interest on unpaid municipal taxes was treated under the Calcutta Municipal Corporation Act as a separate liability from the tax itself, because the statutory scheme distinguished tax, interest and penalty. On that basis, section 43B of the Income-tax Act did not bar deduction merely because the interest remained unpaid. The interest was also held allowable against business income on commercial principles, since the assessee had claimed it in relation to business receipts. The revisional and appellate disallowances could not stand, and the deduction was allowed for both assessment years.

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Issues: Whether interest payable on outstanding municipal taxes under the Calcutta Municipal Corporation Act, 1980 formed part of municipal tax so as to attract section 43B of the Income-tax Act, 1961; and whether, if section 43B was inapplicable, the interest was otherwise deductible against the assessee's income.

Analysis: Under section 217(3) of the Calcutta Municipal Corporation Act, 1980, interest on unpaid municipal tax is separately levied, and section 217(4) characterises it as payable in addition to the amount of tax. Section 219(1) likewise treats tax, interest and penalty as distinct components. On that scheme, the interest is a separate liability and not part of municipal tax, so section 43B of the Income-tax Act, 1961 does not bar deduction merely because the amount remained unpaid. The earlier Calcutta High Court decision relied on by the Department concerned a different statutory scheme and did not decide the present question. The assessee had, on the facts, claimed the interest against business income, and the materials showed that the rental receipts formed part of the assessee's business activity. On commercial principles, and having regard to the treatment of such income and expenditure, the interest was allowable as a deduction against business income.

Conclusion: The interest on outstanding municipal taxes did not fall within section 43B and was deductible against the assessee's business income.

Final Conclusion: The revisional and appellate orders disallowing the claim could not stand, and the assessee was entitled to the deduction of the interest for both assessment years.

Ratio Decidendi: Where municipal law treats interest on delayed tax payment as a separate and distinct liability from the tax itself, section 43B does not apply merely because the interest remains unpaid; such interest may still be deductible if, on the facts, it is laid out against business income on commercial principles.

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