TMI Blog1994 (10) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions contained in rule 27E of the Regulation framed under the Electricity (Supply) Act, the Tribunal is right in law and fact in holding that there was no infraction of law and this was not any penal interest ? (2) Whether, on the facts and in the circumstances of the case and also in view of the decision of the Supreme Court in Indian Aluminium Co. Ltd. v. CIT [1971] 79 ITR 514, the assessee is entitled to claim deduc tion for the interest paid or payable ? " In Income-tax Reference No. 24 of 1985 apart from the second question referred to above, two other questions are referred as follows : " (1) Whether, on the facts and in the circumstances of the case and also in view of the statutory provisions contained in rule 27E of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty, it is only an interest charged as any other commercial transaction where payment is delayed and that the assessee had to pay interest not for any violation of any law. Thus, the claim made by the assessee was allowed. On further appeal before the Income-tax Appellate Tribunal by the Revenue, the decision of the first appellate authority was confirmed. The Tribunal has referred to the minutes of the discussion between the assessee and the Electricity Board and it found that there was considerable area of dispute about the supply to be made, the rates to be paid, etc., and all that was settled only consequent to the discussion. The interest, which was charged at six per cent. per annum and described as damages in the minutes was also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest between the assessee and the Electricity Board that no claim had been made during the previous year by the Electricity Board and, therefore, there was no enforceable and ascertained liability that had accrued to the assessee. The first appellate authority took the view that since the liability to pay interest was certain in view of the provisions contained under the Regulations and the dispute was only regarding the rate of interest and since the assessee was following the mercantile system of accounting the deduction claimed was admissible. The Tribunal took the view that the liability to pay interest did not involve any infraction of law as it had already held in the case of the assessee for the year 1971-72 and upheld the claim put ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges that it does not have any penal character. Merely because it is described as damages or penalty it will not lose its compensatory character. In Prakash Cotton Mills P. Ltd.'s case [1993] 201 ITR 684, the Supreme Court has quoted with approval the observations made by a Division Bench of the Andhra Pradesh High Court in CIT v. Hyderabad Allwyn Metal Works Ltd. [1988] 172 ITR 113, that (at page 689) : " the mere nomenclature as interest, penalty or damages in the Act may not be conclusive for the purpose of allowing it as a deduction under the Income-tax Act. " In Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429 (SC), the Supreme Court considered the question whether the interest paid by the assessee under section 3(3) of the U. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 320 (Delhi), the Supreme Court held that interest to be paid under section 3(3) is in the nature of compensation paid to the Government for delay in payment of cess and, therefore, the assessee is entitled to deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. Clause 27 of the Regulations regarding Conditions of Supply of Electrical Energy, 1972, provides for matters relating to payment of bills. Sub-clause (a) directs that the bill shall be paid by the consumer at the local office of the Board on or before the due date shown in the invoice. Sub-clause (c) provides that if the consumer fails to pay any bill presented to him on or before the due date, the Board shall be at liberty to take action under sub-section (1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g services, etc., the amounts which the assessee was bound to deduct under section 18(3B) of the Indian Income-tax Act, 1922. There was no condition or stipulation in the agreement between the assessee and the foreign company that the fee would be payable by the assessee without deduction of tax under the provisions of the Indian Income-tax Act, 1922. The assessee had therefore to pay the amount of tax liable to be deducted from the payments made to the foreign company. When the foreign company refused to reimburse the amount, the assessee wrote off the amount and claimed deduction as bad debt. The claim was negatived by the Supreme Court holding that payment made under a statutory obligation because the assessee was in default could not co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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