1991 (8) TMI 172 - AT - Income Tax

Tribunal restores decision on interest tax deductibility, upholding tax compliance and legislative intent.

Inspecting Assistant Commissioner. Versus Bank Of Maharashtra.

The Tribunal set aside the Commissioner's order and restored the ITO's decision, concluding that interest on unpaid interest tax under the Interest Tax ... Interest Tax Issues:1. Allowability of deduction for interest on unpaid interest tax under the Interest Tax Act, 1974.Detailed Analysis:The issue in this case revolves around the deductibility of interest on unpaid interest tax under the Interest Tax Act, 1974. The assessee was initially liable to pay interest tax but did not do so, leading to a series of appeals and orders. The Tribunal allowed the departmental appeal partly, resulting in the imposition of interest on the unpaid tax without deducting the tax or the interest under relevant sections of the Income-tax Act, 1961. The IAC (Assessment) passed a rectification order deducting the interest tax but not the interest thereon. The assessee claimed deduction of the interest as part of the interest tax or under section 37 of the Income-tax Act, which was rejected by the IAC on the grounds that the interest was penal in nature and not allowable. The Commissioner, however, allowed the appeal, stating that the interest charged under the Interest Tax Act was not a penalty but an extra tax for late payment, citing a Supreme Court decision. This led to the department's grievance.The crux of the department's argument lies in distinguishing the nature of taxes under different Acts. The departmental representative highlighted the difference between direct and indirect taxes, emphasizing that the interest on the interest tax did not partake the character of the tax. The assessee's counsel, on the other hand, relied on the automatic levy of interest under the Tribunal's order and the applicability of a specific provision under the Income-tax Act for penalty, supporting the deductibility of interest. The argument was further strengthened by referencing Palkhivala's commentary on Income-tax Law, which observed the allowability of interest on arrears of tax under various Acts as legitimate business expenditure. The contention was that since interest on the interest tax is part of the interest tax itself, it should be deductible. The discussion also delved into the interpretation of statutes and the implications of specific provisions on deductions.The Tribunal analyzed the provisions of the Interest Tax Act, specifically sections 4, 18, and 21, to determine the deductibility of interest on the interest tax. While section 18 did not explicitly provide for the deductibility of such interest, the assessee relied on a Supreme Court decision by drawing an analogy with another Act to support their claim. The Tribunal emphasized the principle of interpretation that when something specific is mentioned, other aspects are impliedly excluded. It was argued that allowing the deduction for interest on the interest tax could disincentivize timely payment of the tax, contrary to the legislative intent. The dissimilarity with another Act highlighted the potential negative impact of allowing such deductions on tax compliance. Ultimately, the Tribunal concluded that the issue was not free from doubt or debate, leading to the setting aside of the Commissioner's order and restoration of the ITO's decision.In conclusion, the Tribunal allowed the appeals, emphasizing the importance of upholding the purpose and intent of tax legislation while considering the deductibility of interest on unpaid interest tax under the Interest Tax Act, 1974.