TMI Blog1998 (3) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act, 1961, for the assessment year 1972-73?" The High Court has answered the question in the affirmative and in favour of the Revenue. The question pertains to the assessment year 1972-73. The assessee is a limited company manufacturing yarn. It also does some other business activities. The Income-tax Officer at the time of completing the assessment for the assessment year 1972-73 levied interest under section 139 to the extent of Rs. 11,470 and interest under section 215 of the Income-tax Act, 1961, to the extent of Rs. 1,04,339. The assessee claimed deduction of these amounts of interest under section 37 of the Income-tax Act, 1961, in computing its business income. This claim has been rejected. The assessee contends that the taxes which were payable were delayed and to that extent the assessee's financial resources increased. These increased resources became available for business purposes. Hence the interest which is paid to the Government under sections 139 and 215 represents, in effect, interest on capital that would have been borrowed by the assessee otherwise. Hence these amounts should be allowed as deduction under section 37 as expenses incurred whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rging his statutory obligation, the consequences of that default could constitute an expenditure exclusively incurred for the purpose of his business. The same view was taken in the case of Orient General Industries Ltd. v. CIT [1994] 209 ITR 490, where the Calcutta High Court has held that interest paid for delay in filing the income-tax return has no connection with the business of the assessee. The assessee does not pay the interest for the purpose of business or for carrying on of the business activity. Hence it is not deductible in computing the income of the assessee. The Calcutta High Court reaffirmed in this case its earlier judgment in Balmer Lawrie and Co. Ltd. v. CIT [1960] 39 ITR 751 (Cal). The Punjab and Haryana High Court has also taken the same view in CIT v. Oriental Carpet Manufacturers (India) P. Ltd. [1973] 90 ITR 373 (P H) by holding that interest on payment of delayed tax takes colour from the principal amount payable and hence is not deductible. The Madras High Court has also held in CIT v. Sundaram and Co. Pvt. Ltd. [1964] 52 ITR 763, that interest on money borrowed to pay advance tax is not deductible as business expenditure. This view has been affirmed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s court as a part of the assessee's liability to pay cess and was held to be deductible. The ratio of this judgment also can have no application here. The payment of sugarcane cess is very much a part of the assessee's business expense. Any interest on arrears of cess would, therefore, take colour from the cess which is payable. It is an indirect tax which has to be paid in the course of carrying on business. It is required to be deducted in order to arrive at the net profits of the assessee for the relevant assessment year. We are here not concerned with the payment of any indirect tax which the assessee may have to pay in the course of his business. We are concerned with the tax which was required to be paid after the ascertainment of the net income of the assessee for the relevant assessment year. Interest which is paid for delayed payment of advance tax on such income cannot be considered as expenditure wholly and exclusively for the purpose of business. Under the Income-tax Act, the payment of such interest is inextricably connected with the assessee's tax liability. If income-tax itself is not a permissible deduction under section 37, any interest payable for default committe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is, therefore, for the purposes of the assessee's business and hence should be allowed as a deduction. The argument is similar to the argument advanced in C. A. No. 5509 of 1985 relating to Bharat Commerce and Industries Ltd. The main point of distinction which the assessee has drawn is that the interest in his case is under the Voluntary Disclosure of Income and Wealth Act, 1976, and hence it should be treated as expenditure incurred for the purposes of the assessee's business. The Voluntary Disclosure of Income and Wealth Act, 1976, is an Act to provide for voluntary disclosure of income and wealth. Section 3 of the Act provides that where any person makes, on or before the prescribed date, as set out in the section, a declaration in respect of any income chargeable to tax under the Indian Income-tax Act for any assessment year for which he has failed to furnish a return under section 139 of the Income-tax Act; or which he has failed to disclose in a return of income; or the assessee makes a declaration of income which has escaped assessment by reason of the omission or failure on the part of such person to make a return or to disclose fully and truly all material facts neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on income and shares all the characteristics of such tax. When the assessee is liable to pay interest on delayed payment of such tax, it is on account of his not paying income-tax within the prescribed period. We do not see any reason why any distinction can be made between such interest and interest paid under the Income-tax Act, 1961. Both the payments do not have any nexus with the business of the assessee. They are statutory liabilities in respect of the obligations of the assessee which arise under the Income-tax Act and the Voluntary Disclosure of Income and Wealth Act, 1976, after the income of the assessee is determined and/or declared under the said Acts. They cannot be deducted before the determination of such income. The assessee, however, has drawn our attention to section 80V of the Income-tax Act, 1961, which was in force during the assessment years with which we are concerned. Under section 80V, "In computing the total income of an assessee, there shall be allowed by way of deduction any interest paid by him in the previous year on any money borrowed for the payment of any tax due from him under this Act". Learned counsel for the respondent submitted that section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question arose whether this commission which was paid to the bank by the assessee was allowable as a deduction. The Gujarat High Court purported to distinguish the earlier judgments where interest paid on delayed payment of tax was held as not deductible. The Gujarat High Court said that payment of interest for delayed payment of tax or payment of interest on moneys borrowed from third parties for payment of tax may be inadmissible. But such payments are not similar to the payment which an assessee makes to the bank as commission for obtaining a bank guarantee for securing the payment of tax. The Gujarat High Court has not held that payment of interest on delayed payment of tax is an expense incurred wholly for the purposes of the assessee's business. It has, however, distinguished commission on bank guarantee from interest on money borrowed for payment of tax. The above case does not, therefore, help the assessee in the present case. We need not, therefore, examine the correctness or otherwise of the judgment of the Gujarat High Court. It cannot be said, in the present case, that the payment of interest is in any way an expense incurred wholly or exclusively for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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