Decided on June 08,1982



P.V.B. Rao, Vice President - (1.) THE short question to be considered by the Special Bench is : Whether a sum of Rs. 1,41,516 paid by way of interest to the Income-tax Department under Section 220(2) of the Income-tax Act is an allowable deduction under Section 37 or 28 in computing the business income of the assessee ?
(2.) This question is no longer res integra in view of the two direct decisions of the High Courts on the point, they are CIT v. Oriental Carpet Manufacturers (India) (P.) Ltd. [1973] 90 ITR 373 (Punj. & Har.) and National Engineering Industries Ltd. v. CIT [1978] 113 ITR 252 (Cal.). But Shri J.P. Shah, learned counsel for the assessee, has taken us through several decisions to convince us that the aforesaid decisions have not been correctly decided in view of the certain observations in the Supreme Court's decisions to which he has referred. Naturally, therefore, the argument covered a wide gamut. The learned departmental representative also very ably replied the contentions of Shri Shah. However, in order to proceed further it may be necessary to state the facts which are in brief. The assessee is a limited company carrying on business in manufacturing textiles in Ahmedabad. The assessee paid interest under Section 220(2) of the Income-tax Act, 1961 ("the Act") in the assessment year 1977-78 which is the year under appeal (accounting year of the assessee being calendar year). The details of such interest are as follows : DETAILS OF INTEREST PAID TO INCOME- TAX DEPARTMENT UNDER SECTION 220(2) JUDGEMENT_327_TLIT0_19820.htm The assessee claimed the interest amount of Rs. 1,41,516 as a deduction from income from business. The ITO did not accept the assessee's claim on the ground that the interest payment to the income-tax department is not for the purpose of carrying on the business activity of the assessee but on account of default of non-payment of tax.
(3.) THE assessee carried the matter in appeal. THE Commissioner (Appeals) confirmed the disallowance on a cryptic reasoning that there is no provision of law under which the interest can be allowed.;

Click here to view full judgement.
Copyright © Regent Computronics Pvt.Ltd.