TMI Blog2015 (8) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... credits, the balance amount was also disallowed. He had rightly relied on the judgment of Supreme Court in Shew Kissen Bhatter V/s Commissioner of Income Tax, West Bengal (1973 (3) TMI 2 - SUPREME Court) and Jaswantrai P.Mehta V/s Commissioner of Income-tax (1991 (6) TMI 62 - GUJARAT High Court ). - Decided in favour of revenue. - D. B. Income Tax Appeal No. 133/2006 - - - Dated:- 14-7-2015 - Sunil Ambwani And Vijay Bishnoi,JJ. For the Appellant : Mr Sunil Bhandari For the Respondent : None JUDGMENT By The Court ( Per Hon'ble Sunil Ambwani, CJ ) 1. We have heard learned counsel appearing for the Department. 2. The appeal was admitted on 12.12.2006, after which, it could not be listed as the service on respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts it is seen that the amounts more than the principal loan stand repaid, therefore, the credit balance represents only cumulative interest on interest for the past so many years, therefore, the interest liability claimed is wholly referable to interest on interest. Since interest amounting to ₹ 14985/- had already been disallowed on ingenuine credits, the balance amount of ₹ 3,67,202/- is disallowed in view of the judgments cited supra. 6. The Appellate Authority (Commissioner of Income Tax (Appeals)), partly allowed the appeal of the assessee on the claim of interest on the ground that the provisions of Section 36(1)(iii) and Section 37(1) entitle such deduction; the AO was not justified in disallowing the claim and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court considering the question of payment of interest on interest for which the claim was made under section 9(1)(iv) of the Act held as follows:- The question is whether the assessee is entitled to deduct the compound interest payable by him in accordance with the terms of the contract referred to earlier or whether he is only entitled to deduct simple interest at the rate of 6- 3/4% per annum. It must be borne in mind that what the law permits is the deduction of the 'amount of any interest. on such mortgage or charge'. The interest payable by the assessee on the capital charge was at the rate of 6 3/4% per annum. But if he fails to pay that in accordance with the terms of the contract, he was liable to pay compound intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we accept Mr. Chagla's contention as correct, then the door will be open for evasion of tax. All that the debtor need do is not to pay interest regularly but utilise that amount for other purpose and make the Revenue pay compound interest payable by him and thus derive advantage out of his own omission. Such an interpretation is impermissible. 9. The Gujarat High Court in Jaswantrai P.Mehta V/s Commissioner of Income-tax ((1992) 61 Taxman 71 (Guj.)) with reference to Section 57(iii) of the Act held that the interest paid on account of failure to pay interest for preceding year cannot be considered as expenditure laid out or expended wholly or exclusively for purpose of making or earning income. 10. The Bombay High Court in Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for the retention by one person of a sum of money belonging to or owed to another. As the essence of interest is that it is a payment which becomes due because the creditor has not had his money at the due date. It may be regarded either as representing the profit he might have made if he had use of the money, or conversely, the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation. (per Lord Wright in Riches v. Westminister Bank Ltd. [1947] AC 390 at 396, 398 HL). It is only interest in the above sense which is deductible under Section 36(1) (iii). If in the garb of interest something more is paid over and above 'interest', that something cannot be allowed as d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36(1)(iii) allows deduction of only that part of the amount paid as interest, which is the interest on money borrowed, which can be genuinely regarded as interest. When the principal amount borrowed stood repaid, the interest on interest was not a genuine amount, even if it was payable to the creditor which will qualify for deduction. 12. We do not find that the Appellate Authority and the ITAT have given sufficient and cogent reasons in holding that the assessee is entitled to deduction under section 36(1)(iii) of the Act and Section 37(1) of the Act. The ITAT has relied on the judgment of the Supreme Court in CIT V/s Narendra Doshi (2002) reported in 254 ITR 606, which was related to the issue of interest to be charged on the refund am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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