K.SINGHAL, J. - (1.) THE Tribunal has referred the following two questions of law arising out of its order dt. 8th Dec., 1986 in respect of asst. yr. 1982-83 under s. 256(1) of the IT Act, 1961: "1. Whether the Tribunal was right in holding that the amount of subsidy received from the Central/State Government is not to be deducted from the cost of plant and machinery, building, etc., for working out the cost for the purpose of depreciation, investment allowance, etc.? 2. Whether the Tribunal was right in holding that interest paid under ss. 215, 216, 217 and 220(2) is allowable as revenue expenditure ?"
(2.) SO far as the first question is concerned the law is now well settled by the decision of the apex Court given in the case of CIT vs. P.J. Chemicals Ltd. (1994) 121 CTR (SC) 201 : (1994) 210 ITR 830 (SC) wherein the apex Court has observed. "The expression `actual cost' needs to be interpreted liberally. The subsidy of the nature we are concerned with, does not partake of the incidents which attract the conditions for their deductibility from "actual cost". The Government subsidy, it is unreasonable to say, is an incentive not for the specific purpose of meeting of a portion of the cost of the assets, though quantified as or geared to a percentage of such cost. If that be so it does not partake of a character of a payment intended either directly or indirectly to meet the "actual cost". We should prefer the reasoning of the majority of the High Courts to the one found acceptable by the High Court of Punjab & Haryana." In view of the above decision, we are of the view that the Tribunal was right in holding that the amount of subsidy received from the Central/State Government is not to be deducted from the cost of plant and machinery, building, etc. for working out the cost for the purpose of depreciation, investment allowance, etc. The facts with regard to the second question are that a sum of Rs. 3,475 paid to the Government under ss. 215, 216, 217(1A) and 220(2) of the Act was disallowed from the amount of Rs. 6,174 received as interest from the Government. In appeal before the AAC, the interest paid to the Government was directed to be allowed. In the second appeal before the Tribunal by the Revenue it was contended that the deduction of such interest would be against public policy and could not also be regarded as interest on borrowed capital and should be disallowed because it was for the infringement of the law which required the payment of tax in time. The Tribunal was of the view that the interest for delayed payment of tax is only compensation for withholding the payment of money which was utilised by the assessee in its business and, as such it is an expenditure incurred wholly and exclusively for the purpose of business. We have considered over the matter. Sec. 215, 216, 217(1A) and 220(2) provides for payment of interest on the contingencies mentioned in the said sections. The amount of interest paid for non-payment/lesser payment of income-tax liability cannot be considered to be a liability for carrying on the business or the statutory impost like purchase-tax, sales-tax, etc. The payment of purchase-tax/sales-tax is concerned with the transaction of the business being carried on and any liability for such delayed payment affects the business transaction. Interest paid for non- payment/lesser payment or delayed payment of tax is not in respect of the business which is carried on and, therefore, cannot stand on the same footing as delayed payment of other taxes.
(3.) SEC. 36(1)(iii) provides deduction of the amount of interest paid in respect of capital borrowed for the purposes of the business or profession. In CIT vs. International Instruments P. Ltd. (1984) 39 CTR (Kar) 182 : (1983) 144 ITR 936 (Kar) : TC 15R.399 Karnataka High Court has held that interest payable under s. 220(2) is on account of delay in payment of tax cannot be regarded as having been incurred for the purposes of business. 8A. The Delhi High Court in Bharat Commerce Industries Ltd. vs. CIT (1985) 45 CTR (Del) 1 : (1985) 153 ITR 275 (Del) : TC 17R.824 has held that interest levied under s. 139 or under s. 215 cannot be allowable deduction under s. 37 for the purposes of computing the profit of the assessee. The Calcutta High Court in National Engg. Industries Ltd. vs. CIT (1978) 113 ITR 252 (Cal) : TC 17R.1504 has held that interest paid as delayed payment of taxes under s. 220(2) is not deductible as business expenditure. Sec. 80V permitted deduction in respect of interest paid on money borrowed to pay taxes under the Act for asst. yr. 1976-77 to 1985-86. ;