TMI Blog1991 (8) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... liability. The Tribunal, however, allowed the departmental appeal partly. The ITO in giving effect to the Tribunal's order, charged interest on the said unpaid tax from the date of original assessment order without giving deduction of the tax or the interest under section 21 of the Interest-tax Act, 1974, read with section 220(2) of the Income-tax Act, 1961. The IAC (Assessment) passed a rectification order and deducted the interest tax from the assessee's income but did not deduct the interest thereon. The assessee filed an application under section 154 claiming deduction of the interest on the ground that it was a part of the interest tax or alternatively under section 37 of the Income-tax Act. The IAC, however, rejected the assessee's ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee (at page 200)." This, according to him showed that the payment of indirect tax only could be a deduction for a direct tax. The assessee's learned counsel, on the other hand, drew our attention to the ITO's order giving effect to the Tribunal's order wherein, the interest has been charged simultaneously as part of the said order, to show that the said levy of interest was automatic. He submitted that there was a separate provision under section 221 of the Income-tax Act which was applicable under the Interest Tax Act, whereby penalty was leviable which was also the reason why the Supreme Court in the case of Mahalakshmi Sugar Mills Co. held that the interest was not penal in nature and was deductible. He also drew our attention to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputing total income under Income-tax Act : Notwithstanding anything contained in the Income-tax Act, in computing the income of a scheduled bank chargeable to income-tax under the head ' Profits and gains of business or profession ', the interest tax payable by the scheduled bank for any assessment year shall be deductible from the profits and gains of the bank assessable for that assessment year. Section 21: Application of provisions of Income-tax : The provision of the following sections and Schedules of the Income-tax Act and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to time, shall apply with necessary modifications as if the said provisions and the rules referred to interest tax instead of to Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t thereof or encourage it by granting deduction in respect of interest on that tax. 6. If interest on the interest tax was allowable as a deduction, it would not encourage the assessee to pay the interest tax in time as much as it would, if it was not allowable. Since it is the purpose of the interest tax to levy and collect the tax on the interest, it would not be its purpose to reduce the incentive for the payment of tax. This dissimilarity from the case of U.P. Sugarcane Purchase Tax Act is clear, i.e., while in the U.P. Sugarcane Purchase Tax Act the payment of interest on the unpaid cess would act as an incentive the allowability of the deduction on the interest tax would work as a disincentive in payment of interest tax. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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