2009 (12) TMI 1034 - AT - Income Tax

Interest paid on late deposit of service-tax with Government account - AO treated above amount as a penalty and disallow the same - CIT(A) held that payment made was of compensatory nature and therefore permissible as a business deduction thus deleted the disallowance - HELD THAT - Following the decision in the case of Mahalakshmi Sugar Mills. 1980 (4) TMI 1 - SUPREME COURT examined the question whether interest paid on delayed payment of cess was a penalty. After considering relevant statutory provisions it was held that it was compensatory and therefore a permissible deduction. We have examined relevant provisions of section 75 and are of the view that interest paid for the delayed payment of service-tax is compensatory and has the same character as service-tax. There is no dispute that service-tax is a permissible deduction. In our opinion the interest should also be allowed in the same manner. In the light of above discussion we uphold the order of CIT(A) on ground No. 1. Nature of expenditure - Enduring benefit in acquiring logo - business deduction or not? - whether by making payment in question the assessee has acquired any enduring benefit - HELD THAT - It is quite evident from above that Messee Dusseldorf GmbH permitted the assessee the use of logo for limited period between 24th to 27th Sept. 2003 and between 5th Dec 2003 to 9th Dec 2003 at trade fairs held at Hyderabad. No enduring benefit was received by the assessee. Expenditure was incurred wholly and exclusively for purposes of business and was rightly allowed by the learned CIT(A) as a revenue deduction. We confirm his finding and dismiss the second ground of appeal also.

Summary

Issues Involved:
1. Deletion of addition of interest paid on late deposit of service-tax.
2. Treatment of expenditure on trade mark expenses as revenue expenditure.

Analysis:

Issue 1: Deletion of addition of interest paid on late deposit of service-tax
The appeal by the Revenue challenged the deletion of the addition of interest amount paid by the assessee on late deposit of service-tax. The AO treated the interest as a penalty and disallowed it, but the CIT(A) held it was compensatory and allowable as a business deduction. The ITAT examined the nature of the interest payment under section 75 of the Finance Act, 1994, and compared it to a similar case regarding "cess" interest. Relying on the Supreme Court decision in Mahalakshmi Sugar Mills Co. v. CIT, the ITAT concluded that the interest paid for delayed service-tax payment was compensatory, similar to service-tax, and hence should be allowed as a deduction. Therefore, the ITAT upheld the CIT(A)'s decision on this ground.

Issue 2: Treatment of expenditure on trade mark expenses as revenue expenditure
The second issue involved the treatment of expenditure on obtaining a logo for use in trade fairs. The AO contended that the assessee acquired an enduring benefit from the logo, allowing only part of the expenses. However, the CIT(A) found that the payment was for temporary use during specific trade fairs, with no enduring benefit to the assessee, and allowed the amount as a business deduction. The ITAT examined the confirmation from Messee Dusseldorf GmbH, which clearly stated the limited period and purpose of logo use at the trade fairs. Based on this evidence, the ITAT agreed with the CIT(A) that no enduring benefit was acquired by the assessee, and the expenditure was wholly for business purposes, thus confirming the allowance as a revenue deduction. Consequently, the ITAT dismissed the appeal of the Revenue and the cross-objection of the assessee.

In conclusion, the ITAT upheld the CIT(A)'s decision on both issues, allowing the interest paid on late service-tax deposit as a deduction and confirming the treatment of trade mark expenses as revenue expenditure.