TMI Blog2015 (2) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... ax, duty, or cess can be deducted only on payment, it is just un-understandable as to how the interest thereon can be deducted without making payment thereof. Take an instance, where an assessee is placed under obligation to pay the tax, the duty or cess of ₹ 5,00,000 and it remained unpaid for about 5 or 6 years. He cannot make deduction thereof, because it was not paid. If the law, under which the tax, duty or cess is levied, provides for payment of interest, and a substantial amount had accrued on that amount, the assessee may try to get the benefit of deduction of that equivalent amount, without actually paying it by treating as separate and independent of the tax liability. Such a situation may, in fact, lead to absurdity, and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch A of the Income-tax Appellate Tribunal (for short the Tribunal ). Through its order, dated December 11, 1995, the Tribunal partly allowed the appeals, but remanded the matter to the Commissioner (Appeals), for fresh consideration. Not satisfied with the result, the Department filed R. A. No. 315/Hyd/1996, under section 256(1) of the 1961 Act, with a prayer to refer the following questions to this court for answer : 1. In the facts and on the circumstances of the case, whether the Income-tax Appellate Tribunal is justified in holding that the provisions of section 43B are not applicable to interest payable on purchase duty ? 2. Whether the Income-tax Appellate Tribunal is justified in ignoring that interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made, only on payment, it was specific, such as in the case of interest payable on loans, under section 43B(d) of the 1961 Act. He submits that the Tribunal has assigned cogent reasons in support of its conclusions and the questions need to be answered against the Revenue. In the context of processing of the returns filed by an assessee, deductions of various categories are permitted under the relevant provisions of the 1961 Act. Controversy persisted as to whether deduction of any amount can be permitted only when it is paid actually in the form of tax, duty or cess or on just incurring of the liability to pay. Judicial pronouncements are to the effect that irrespective of the actual payment, the deduction can be made once the liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny leave at the credit of his employee ; shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him : (remaining portion of the section is omitted, since it is not relevant for the purpose of this case.) The deduction claimed by the respondent is, as regards interest on purchase tax. It is not clear as to whether the respondent paid the purchase tax for the concerned period or whether deduction thereof has been claimed. It is not in dispute that the component of interest on which the deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Cess Act cannot be described as a penalty paid for an infringement of the law. As that is the only ground on which the Revenue resist the claim of the assessee to a deduction of the interest under section 10(2)(xv) of the Indian Income-tax Act, 1922, the assessee is entitled to succeed. There is no dispute that the payment of interest represents expenditure laid out wholly or exclusively for the purpose of the business. There is also no dispute that it is in the nature of revenue expenditure. The facts of the present case are totally different. There is no comparison between the provisions that govern both the cases. As a matter of fact, section 43B of the 1961 Act was not in force when Mahalakshmi Sugar Mills Co.'s case (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not making actual payment, it will lead to almost a semblance of absurdity. If the actual tax, duty, or cess can be deducted only on payment, it is just un-understandable as to how the interest thereon can be deducted without making payment thereof. Take an instance, where an assessee is placed under obligation to pay the tax, the duty or cess of ₹ 5,00,000 and it remained unpaid for about 5 or 6 years. He cannot make deduction thereof, because it was not paid. If the law, under which the tax, duty or cess is levied, provides for payment of interest, and a substantial amount had accrued on that amount, the assessee may try to get the benefit of deduction of that equivalent amount, without actually paying it by treating as separate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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