TaxTMI 
TaxTMI 
1998 (3) TMI 2
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....arn. It also does some other business activities. The Income-tax Officer at the time of completing the assessment for the assessment year 1972-73 levied interest under section 139 to the extent of Rs. 11,470 and interest under section 215 of the Income-tax Act, 1961, to the extent of Rs. 1,04,339. The assessee claimed deduction of these amounts of interest under section 37 of the Income-tax Act, 1961, in computing its business income. This claim has been rejected. The assessee contends that the taxes which were payable were delayed and to that extent the assessee's financial resources increased. These increased resources became available for business purposes. Hence the interest which is paid to the Government under sections 139 and 215 represents, in effect, interest on capital that would have been borrowed by the assessee otherwise. Hence these amounts should be allowed as deduction under section 37 as expenses incurred wholly and exclusively for the purpose of its business. The assessee was required to pay advance tax under section 212 on the basis of his own estimate. Under section 215, if the tax so paid is less than 75 per cent. of the assessed tax, interest as prescribed t....
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....cutta High Court has held that interest paid for delay in filing the income-tax return has no connection with the business of the assessee. The assessee does not pay the interest for the purpose of business or for carrying on of the business activity. Hence it is not deductible in computing the income of the assessee. The Calcutta High Court reaffirmed in this case its earlier judgment in Balmer Lawrie and Co. Ltd. v. CIT [1960] 39 ITR 751 (Cal). The Punjab and Haryana High Court has also taken the same view in CIT v. Oriental Carpet Manufacturers (India) P. Ltd. [1973] 90 ITR 373 (P & H) by holding that interest on payment of delayed tax takes colour from the principal amount payable and hence is not deductible. The Madras High Court has also held in CIT v. Sundaram and Co. Pvt. Ltd. [1964] 52 ITR 763, that interest on money borrowed to pay advance tax is not deductible as business expenditure. This view has been affirmed by this court in Padmavati Jaikrishna's case [1987] 166 ITR 176 as well as in East India Pharmaceutical Works Ltd.'s case [1997] 224 ITR 627. The assessee, however, has placed reliance upon a decision of this court in CIT v. Birla Cotton Spinning and Weaving Mil....
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....cess would, therefore, take colour from the cess which is payable. It is an indirect tax which has to be paid in the course of carrying on business. It is required to be deducted in order to arrive at the net profits of the assessee for the relevant assessment year. We are here not concerned with the payment of any indirect tax which the assessee may have to pay in the course of his business. We are concerned with the tax which was required to be paid after the ascertainment of the net income of the assessee for the relevant assessment year. Interest which is paid for delayed payment of advance tax on such income cannot be considered as expenditure wholly and exclusively for the purpose of business. Under the Income-tax Act, the payment of such interest is inextricably connected with the assessee's tax liability. If income-tax itself is not a permissible deduction under section 37, any interest payable for default committed by the assessee in discharging his statutory obligation under the Income-tax Act, which is calculated with reference to the tax on income cannot be allowed as a deduction. In the present case section 80V of the Income-tax Act is not attracted because section 80....
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....sessee has drawn is that the interest in his case is under the Voluntary Disclosure of Income and Wealth Act, 1976, and hence it should be treated as expenditure incurred for the purposes of the assessee's business. The Voluntary Disclosure of Income and Wealth Act, 1976, is an Act to provide for voluntary disclosure of income and wealth. Section 3 of the Act provides that where any person makes, on or before the prescribed date, as set out in the section, a declaration in respect of any income chargeable to tax under the Indian Income-tax Act for any assessment year for which he has failed to furnish a return under section 139 of the Income-tax Act; or which he has failed to disclose in a return of income; or the assessee makes a declaration of income which has escaped assessment by reason of the omission or failure on the part of such person to make a return or to disclose fully and truly all material facts necessary for his assessment or otherwise; then on the income so disclosed and declared, income-tax shall be charged at the rates specified in the Schedule to the said Act. Section 4 provides for the manner in which the declaration is to be made and particulars which are to ....
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....n such interest and interest paid under the Income-tax Act, 1961. Both the payments do not have any nexus with the business of the assessee. They are statutory liabilities in respect of the obligations of the assessee which arise under the Income-tax Act and the Voluntary Disclosure of Income and Wealth Act, 1976, after the income of the assessee is determined and/or declared under the said Acts. They cannot be deducted before the determination of such income. The assessee, however, has drawn our attention to section 80V of the Income-tax Act, 1961, which was in force during the assessment years with which we are concerned. Under section 80V, "In computing the total income of an assessee, there shall be allowed by way of deduction any interest paid by him in the previous year on any money borrowed for the payment of any tax due from him under this Act". Learned counsel for the respondent submitted that section 80V will apply only to the payment of any tax under the Income-tax Act of 1961. It will not apply to payment of income-tax under the Voluntary Disclosure of Income and Wealth Act, 1976. We need not dwell on this submission because, even if we assume that section 80V does app....