TaxTMI 
TaxTMI 
1971 (9) TMI 55
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....e year 1966-67, the assessee could not pay the provisional demand of tax in respect of earlier assessment and approached the Income-tax Officer for time which was allowed. In respect of these delayed payments, the assessee was charged interest and he paid a sum of Rs. 6,733. This payment of interest has been claimed by the assessee as permissible deduction under sections 37 and 36(1)(iii) of the Income-tax Act, 1961. The Income-tax Officer disallowed this claim and held that the assessee was not entitled to claim it as a permissible deduction under the Act. On appeal before the Appellate Assistant Commissioner, a claim was made that the Income-tax Officer was wrong in not allowing the amount of interest paid as a permissible deduction. T....
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...., such interest is included in the total income. We think that such inclusion also is correct in law." The department then moved the Tribunal under section 256(1) of the Income-tax Act requiring the Tribunal to state the question of law, already referred to, for opinion of this court and that is bow the said question of law has been referred for our opinion. Mr. Awasthy, learned counsel for the department, contended that the payment of interest on delayed payment of income-tax, is not a permissible deduction and the learned counsel relied upon the three decisions relied on by the Appellate Assistant Commissioner, already referred to, and also on the decision in Dalmia Dadri Cement Ltd. v. Commissioner of Income-tax (Income-tax Referen....
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....In order to raise money to pay the tax and save the business, interest had to be paid and as such its payment is a legitimate business expense. We considered this decision in Dalmia Dadri's case (I.T. Ref. No. 19 of 1970). The test that has been laid down in this decision is : "The expression 'for the purpose of business' is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide ; it may take in not only the day-to-day running of a business but also the rationalization of its administration and modernization of its machinery ; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title ....
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....mposition arose because of the territorial nexus afforded by the accident of its doing business in India. It cannot be said that the interest on payment of delayed tax has any connection with the business of the assessee, within the four corners of the aforesaid test. The assessee paid interest in order to get adjustment from the department to pay the income-tax by instalments, and this has nothing to do with his business activity. The liability to tax, though arising out of businees activity, cannot be said to be in any manner a liability which has anything to do with the business of the assessee. It is merely a consequence of income accruing in such business and nothing more. We do not agree with the observations of the Tribunal that t....